Time to bring interest rates down

I’ve been saying it for a couple of years now and I will keep saying it: raising interest rates is dangerous for the economy and will do more harm than good.

It’s like the so-called covid vaccine which was supposed to stop the spread but didn’t stop anyone getting it or spreading it, it just caused harm to millions who took it.

The idea of raising interest rates is to bring down inflation by making money is more expensive to borrow.

Personally I felt that inflation would naturally come down as the supply-chain issues sorted themselves out after the unnecessary lockdowns messed those up and as (I hoped) the BoE gradually removed from the system the insane amount of money they printed during those lockdowns.

But no, they insisted on hiking interest rates just to bring inflation down, admitting, as Jeremy Hunt did, that doing so could put us into recession.

Recession worse than inflation

I don’t know about you but I am much more concerned about the spectre of recession than that of inflation. Really!

So if interest rates stay high, as they are likely to do for the next year as far as I can see, it will cause immense heartache and life-altering problems for millions. Already millions in the UK are struggling and inflation is causing big problems for household finances.

Workers have never really recovered from the 2008 financial crash and wages have not kept up with inflation – particularly property inflation – since then. People are already using their savings to pay for day-to-day bills and debt charities, like Community Money Advice, of which I am patron, are very worried about what they will have to deal with in the next 12-18 months at least.

Lenders are worried too, pulling products, offering higher rates for loans and mortgages and lending to fewer people. Basically we are in another ‘credit crunch’, although it hasn’t been officially announced yet.

Jobs at risk

I am seeing a greater wariness among companies when it comes to spending money on anything. Company insolvencies are on the up and it’s harder for small businesses to get paid. People are losing their jobs but this is just the start of redundancies if a recession really bites.

Alistair Douglas, the CEO of TotallyMoney he says, “the Monetary Policy Committee’s strategy of raising rates to slow inflation may be working, but for some, it’s at the cost of their long-term financial future. Support is needed — let’s just hope the Chancellor provides some when he delivers his Autumn Statement in a few weeks time.”

I’m not sure that the rate rise is fully the reason for inflation slowing, but I agree that support is needed and that we need to hear some clear, sensible ideas in the Chancellor’s Autumn Statement. I’m not holding my breath though.