{"id":92894,"date":"2026-06-08T07:06:29","date_gmt":"2026-06-08T06:06:29","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=92894"},"modified":"2026-06-08T07:06:29","modified_gmt":"2026-06-08T06:06:29","slug":"debate-ammunition-uk-interest-rates","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2026\/06\/08\/debate-ammunition-uk-interest-rates\/","title":{"rendered":"Debate Ammunition: UK interest rates"},"content":{"rendered":"

THE RICHARD J MURPHY YOUTUBE CHANNEL<\/strong><\/span><\/p>\n

DEBATE AMMUNITION<\/strong><\/span><\/p>\n

WHY IS THE BANK OF ENGLAND KEEPING INTEREST RATES SO HIGH?<\/strong><\/span><\/p>\n

Funding the Future | June 2026<\/strong><\/span><\/p>\n

TODAY\u2019S TOPIC<\/strong><\/span><\/p>\n

Why is the Bank of England keeping interest rates so high?<\/p>\n

THE CORE ARGUMENT<\/strong><\/span><\/p>\n

Nearly a century of UK data shows that negative real interest rates have been the consistent policy response to every period of economic stress: the 1930s recession, the Second World War, post-war reconstruction, and the aftermath of the 2008 financial crisis.<\/p>\n

We are now in another such period, caused by supply shocks from war, COVID, and the exchange-rate consequences of Brexit, and yet the Bank of England has deliberately pushed real interest rates back into positive territory for the first time in any comparable crisis in modern British history.<\/p>\n

This is not neutral monetary management; it is a political choice that transfers wealth from mortgage holders, renters, businesses, and public services to banks and those who already hold financial assets, and it will make the coming recession significantly worse than it need be.<\/p>\n

KEY STATISTICS<\/span><\/p>\n

UK interest rates and inflation since 1929<\/p>\n

\"\"<\/p>\n\n\n\n\n\n\n\n\n
Statistic<\/span><\/th>\nFigure<\/span><\/th>\n<\/tr>\n<\/thead>\n
UK 10-year gilt yield (lowest point, QE era)<\/td>\n0.33%<\/td>\n<\/tr>\n
UK peak inflation, 1975<\/td>\n24%<\/td>\n<\/tr>\n
UK peak inflation, 2022<\/td>\n11.6%<\/td>\n<\/tr>\n
Real interest rate at Thatcher-era peak (approx. 1983\u201384)<\/td>\n~6%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

THE ARGUMENT STRUCTURE<\/span><\/strong><\/p>\n\n\n\n\n\n\n\n\n
Step<\/span><\/th>\nDetail<\/span><\/th>\n<\/tr>\n<\/thead>\n
Step 1 \u2014 A century of evidence establishes the pattern<\/span><\/strong><\/td>\nA chart of UK 10-year gilt yields from 1929 to 2026 identifies seven distinct periods. In every period of economic stress, the 1930s recession, the Second World War, post-war reconstruction, and post-2008 recovery, real interest rates were negative. This is not coincidence; it is consistent, repeated policy.<\/td>\n<\/tr>\n
Step 2 \u2014 Supply shocks, not excess demand, created the current inflation<\/span><\/strong><\/td>\nThe inflation crisis of 2022 was caused by energy disruption from Russia's war, broken post-COVID supply chains, and the exchange rate consequences of Brexit. Higher interest rates cannot produce more oil or repair supply chains; they are the wrong tool applied to the wrong problem.<\/td>\n<\/tr>\n
Step 3 \u2014 The Bank of England has broken with a century of precedent<\/span><\/strong><\/td>\nFor the first time in nearly a hundred years, a period of genuine economic stress has been met with positive real interest rates rather than negative ones. This is deliberate policy, and the government, which retains the power to veto the Bank of England under the Bank of England Act 1998, has chosen not to intervene.<\/td>\n<\/tr>\n
Step 4 \u2014 High real rates are social policy, not neutral economics<\/strong><\/span><\/td>\nPositive real interest rates transfer wealth systematically from borrowers to lenders, punish mortgage holders and renters, increase government borrowing costs and thereby justify cuts to public services, and discourage business investment. This is not economic management; it is a political choice whose beneficiaries are banks and those already holding financial assets.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

THEIR ARGUMENT \u2192 YOUR REBUTTAL<\/span><\/strong><\/p>\n\n\n\n\n\n\n\n\n
They Say<\/span><\/th>\nYour Response<\/span><\/th>\n<\/tr>\n<\/thead>\n
The Bank of England must keep rates high to bring inflation back to target and maintain credibility with markets.<\/td>\nThe inflation of 2021 to 2023 was driven by energy prices, supply chains, and the exchange-rate effects of Brexit, none of which respond to interest rate changes. Inflation has already fallen sharply regardless. Maintaining high real rates now does not bring prices down; it simply transfers wealth from borrowers to lenders while increasing the risk of recession.<\/td>\n<\/tr>\n
The Bank of England is independent for good reason; governments should not interfere with monetary policy.<\/td>\nThe Bank of England Act 1998 explicitly gives the Chancellor the power to override the Bank in the national interest. Independence is a convention, not an absolute rule. When the institution uses its powers to impose positive real interest rates during a period of economic stress, contrary to everything a century of evidence tells us, independence becomes a shield for ideology, not a protection of sound policy.<\/td>\n<\/tr>\n
Savers need a return on their money; low interest rates punish prudent people who saved throughout their lives.<\/td>\nThe 70 to 80 per cent of the UK population with little or no significant financial savings do not benefit from high rates; they suffer them through higher mortgages, higher rents, and reduced public services. The return on savings is already sufficient to match inflation. What current rates do, above and beyond that, is extract a wealth transfer from borrowers to lenders. Government's role is to serve the majority, not to maximise returns on financial assets.<\/td>\n<\/tr>\n
Lower interest rates would reignite inflation and crash the pound.<\/td>\nReal interest rates that are mildly negative or near zero are normal during periods of economic stress; they have been so in every comparable period in modern British history. The pound did not collapse during the post-2008 decade of near-zero rates or during the decades of post-war financial repression. The claim is not supported by evidence. What high rates are doing instead is making a coming recession considerably worse than it needs to be.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

THE ONE-LINER<\/span><\/strong><\/p>\n

\u201cEvery period of economic stress in the last hundred years has been met with negative real interest rates; the Bank of England knows this, and has chosen to do the opposite, which means this is not a policy error, it is a policy choice, and the people paying for it are borrowers, renters, businesses, and public services.\u201d<\/p>\n

FURTHER READING<\/strong><\/span><\/p>\n

All sources below are published on Richard Murphy\u2019s Funding the Future blog at taxresearch.org.uk. \/ Funding the Future.<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Post<\/span><\/strong><\/th>\nDate<\/span><\/strong><\/th>\nWhat it covers<\/span><\/strong><\/th>\n<\/tr>\n<\/thead>\n
The Bank of England is harming the country and there isn't a single politician asking why it's allowed to do that<\/a><\/td>\n20 March 2025<\/td>\nArgues that a real BoE base rate of 1.5 per cent above inflation is unjustified during a period of falling inflation and economic fragility.<\/td>\n<\/tr>\n
Why the Bank of England base rate should be no more than the rate of inflation<\/a><\/td>\n17 February 2025<\/td>\nDraws on a Bank of England staff working paper showing that real interest rates have trended to zero over five centuries, making current positive real rates historically anomalous.<\/td>\n<\/tr>\n
The Bank of England is crashing the UK economy<\/a><\/td>\n10 January 2025<\/td>\nExplains how quantitative tightening is deliberately keeping gilt yields elevated and why the Chancellor has both the power and the duty to act.<\/td>\n<\/tr>\n
Borrowing costs are high because that's exactly what the Bank of England wants<\/a><\/td>\n8 January 2025<\/td>\nDocuments 30-year gilt yields reaching levels not seen since 1998 and frames this as the consequence of deliberate Bank policy rather than market forces.<\/td>\n<\/tr>\n
Rachel Reeves\u2019 figures in the Spring Statement don\u2019t stack up \u2013 and are very scary<\/a><\/td>\n27 March 2025<\/td>\nShows that a real interest rate of 2 per cent above inflation will crush business investment and impoverish mortgage holders over the coming parliamentary term.<\/td>\n<\/tr>\n
The Bank of England is continuing to engineer a recession \u2013 and Rachel Reeves is letting it do so<\/a><\/td>\n20 September 2024<\/td>\nArgues that the Bank\u2019s combined policy of high base rates and \u00a3100 billion of quantitative tightening withdraws funds from the real economy and actively creates recession conditions.<\/td>\n<\/tr>\n
Too little, too late: that\u2019s the Bank of England on interest rates<\/a><\/td>\n8 May 2025<\/td>\nCritiques the MPC\u2019s 5 to 4 vote for a quarter-point cut as wholly insufficient, with the real rate remaining well above 1.5 per cent, encouraging stagflation and potential recession.<\/td>\n<\/tr>\n
Interest rates should be as low as possible<\/a><\/td>\n13 May 2024<\/td>\nSets out the structural case that high rates redistribute wealth upwards, reduce productive investment, and serve the interests of financial asset holders over those of the wider economy.<\/td>\n<\/tr>\n
Could the Bank of England make life better?<\/a><\/td>\n16 February 2025<\/td>\nContends that the base rate should match the inflation rate, currently around 2.5 per cent, since the long-run real rate of interest has converged to zero and bank deposits carry no genuine risk.<\/td>\n<\/tr>\n
Interest rates can\u2019t fix inflation now<\/a><\/td>\n11 March 2026<\/td>\nExplains why supply-shock inflation driven by war and energy disruption is structurally immune to interest rate increases, and why the appropriate policy response is government intervention, not monetary tightening.<\/td>\n<\/tr>\n
Unpacking the nonsense being said about interest rates and Reeves<\/a><\/td>\n4 July 2025<\/td>\nDemonstrates that quantitative tightening bond sales are the direct mechanism by which the Bank of England keeps gilt yields elevated, and that this is a deliberate institutional choice, not a market outcome.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

THE RICHARD J MURPHY YOUTUBE CHANNEL DEBATE AMMUNITION WHY IS THE BANK OF ENGLAND KEEPING INTEREST RATES SO HIGH? Funding the Future | June 2026
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