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Original poster

stagflation

71 replies

kerrypeeper · 12/04/2022 06:55

I keep reading that this is looking likely - "February GDP came in below expectations at 0.1%".

Is it likely & for those who have experienced it before what impact does it have? Is there anything one should be doing to lessen the impact or does stuff like saving not spending make it worse?

OP posts:
TwoDaysOff · 12/04/2022 08:13

Interested in replies to this!

RancidOldHag · 12/04/2022 08:18

You need to work out how you are going to manage debt

So what will your repayments be when interest rates are about 7 % (as in the 1980s) or 15 % (1970s) ? Can you reduce debt now?

Otherwise, talk to those who have lived through this once and find out what lessons they leaned when they had to cope - there was a long thread on MN recently where scorn was heaped on those who were talking about the need to cope and the expectation that people will,cope. But it sounds like you don't share that attitude.

Original poster
kerrypeeper · 12/04/2022 08:19

So what will your repayments be when interest rates are about 7 % (as in the 1980s) or 15 % (1970s) ? Can you reduce debt now?

I can't see interest rates at 15%, everything would collapse.

OP posts:
Original poster
kerrypeeper · 12/04/2022 08:20

Otherwise, talk to those who have lived through this once and find out what lessons they leaned when they had to cope

Thats kinda the purpose of my thread

But it sounds like you don't share that attitude.

How have you inferred any attitude from my OP? 😆

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cakeorwine · 12/04/2022 08:21

Is there anything one should be doing to lessen the impact or does stuff like saving not spending make it worse

That's interesting.

If people don't spend, then the economy suffers and people lose jobs.
If people spend, then they may get into debt and they suffer.

Personally I am cutting down on my spending....so less take aways and other frivolous spending.

So some business somewhere isn't getting my money.

cakeorwine · 12/04/2022 08:23

Plenty of ways to reduce your heating bills.

Who needs all rooms heated anyway?

Lunar27 · 12/04/2022 08:24

I agree with @kerrypeeper. When interest rates were 15% house prices were low. Now they're not and no government is going to make huge numbers of the voting public homeless by allowing interest rates to hit 15%.

IMO I think even 7% is a stretch but is still a good time to be paying down debts.

RancidOldHag · 12/04/2022 08:25

I can't see interest rates at 15%, everything would collapse

No it won't. It's not unimaginable, it's real lived experience. Not for the elderly, for those at the top of the working age population too.

The all time high was 17% in 1979

RancidOldHag · 12/04/2022 08:25

High inflation also erodes size of debt, of course

Lunar27 · 12/04/2022 08:28

@cakeorwine

Definitely. We are doing the same but generally spending less at large corporations and more in local shops.

DGRossetti · 12/04/2022 08:32

no government is going to make huge numbers of the voting public homeless by allowing interest rates to hit 15%.

Why not.

"No government" would deliberately allow fuel bills to double.

But they did.

"No government" would deliberately break the rules it forced onto the rest of us.

"No government" would break a manifesto pledge and lie about it.
I could go on.

Thinking "no government would" isn't really a political strategy.

Also - and sorry to be a bore - but this is what people wanted anyway. They'll claim they didn't because people are fickle, but it was an inevitable state of affairs once this "no government" was elected.

RomComPhooey · 12/04/2022 08:35

@kerrypeeper

So what will your repayments be when interest rates are about 7 % (as in the 1980s) or 15 % (1970s) ? Can you reduce debt now?

I can't see interest rates at 15%, everything would collapse.

I remember mortgage rates hitting 12% in the late 80s. My parents were mortgaged up to the hilt. It was squeaky bum time for our family finances. When DH and I were nearing the end of our mortgage’s 5 year fix some years ago we used an affordability calculator to work out monthly repayments right up to 12% before deciding it was OK not to fix again. Like our previously cheap food, after a longish period of market stability we are too used to cheap borrowing.
cakeorwine · 12/04/2022 08:38

Affordability calculators people use nowadays take into account a slightly increased interest rate - but did they predict increased household bills ?

Original poster
kerrypeeper · 12/04/2022 08:39

The all time high was 17% in 1979

but what were house prices like in comparison or in relation to wages?

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BulletTrain · 12/04/2022 08:39

I've just paid a £2k early repayment charge to get out of my current fixed mortgage rate a year early and fix at a lower rate for 10 years. It's worth looking into if your current deal ends in the next year or so.

Original poster
kerrypeeper · 12/04/2022 08:40

If people don't spend, then the economy suffers and people lose jobs.If people spend, then they may get into debt and they suffer.

That's the conundrum but my instinct is to cut back & save, I don't have lots spare though.

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Original poster
kerrypeeper · 12/04/2022 08:44

I remember mortgage rates hitting 12% in the late 80s.

When I meant I can't see it I didn't mean it didn't happen historically. I meant in this current climate.
Surely the BOE will not introduce really high rates as the idea that will control inflation isn't sound as its global & with GDP already below expectations it would be an unusual move.

OP posts:
Chloemol · 12/04/2022 08:46

@Lunar27

I agree with *@kerrypeeper*. When interest rates were 15% house prices were low. Now they're not and no government is going to make huge numbers of the voting public homeless by allowing interest rates to hit 15%.

IMO I think even 7% is a stretch but is still a good time to be paying down debts.

As I lived through this I can tell you that’s not the case, it’s relative to income at the time. What wasn’t available was the cheap credit if the past decades with low interest rates, 0% deals, buy now pay later etc, and the reality for a lot of people now is they now have to repay that debt, but can’t.

Mortgages and interest rates went up to double figures, interest rates went up 3/4 times in one day to 15%! You still had to find the money to pay the mortgage and all other bills

You had to ‘tighten your belt’ just as we are having to do now to make sure you paid your mortgage and bills.

Having lived through this before I have a different attitude to debt that lots who haven’t, I save up before I buy anything, I don’t use credit cards unless I know I can repay it the next month, or have a plan to pay over a few months

People have got used to having what they want now and it’s now coming back to bite them on the bum

crossstitchingnana · 12/04/2022 08:48

I used a mortgage calculator recently to compare our mortgage in 1998 (fixed at 7%) and what we would be paying now, fixed at the current rate. Same amount borrowed (£75k.)

1998 £527 a month
2022 £332 a month

Just shows what a difference interest rates make. I am convinced that low interest rates have contributed to crazy house prices, as people snapped up second homes.

Original poster
kerrypeeper · 12/04/2022 08:50

People have got used to having what they want now and it’s now coming back to bite them on the bum

I'm not sure how true that is. Lots of people have no choice but to use debt in order to live or take out big mortgages because it's still cheaper not to mention more secure than renting

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Original poster
kerrypeeper · 12/04/2022 08:51

Just shows what a difference interest rates make. I am convinced that low interest rates have contributed to crazy house prices, as people snapped up second homes.

100% & subsequent QE which has deflated salaries.

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Original poster
kerrypeeper · 12/04/2022 08:53

although a 75k mortgage in the 90s would get you a lot more than now & salaries have probably hardly changed.

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DGRossetti · 12/04/2022 08:55

Just shows what a difference interest rates make

Depends who you are.

If you've just started a 25 year mortgage, then even a 0.1% change in interest rates can be dramatic.

If you are in the last years of a mortgage, interest rates could go up to 20% and you probably wouldn't notice.

We've now fixed our mortgage to it's end term. However by then I suspect our energy bills will be more than our repayments.

MyCommentWasDeleted · 12/04/2022 09:02

We’ve just fixed our mortgage on a 10 year fix at less than 2%, I don’t think we can do much more than that. We’ve sold one car while the second hand market is so high and will be a one car family from now on. Looking at solar but it’s just not worth the investment IMO for the return. Wages aren’t going up but cost of living is so that means less to spend on non-essentials and I guess the possibility of a stagflation period for a while. 0.1% growth isn’t great and means a recession is more likely.

LemonTT · 12/04/2022 09:05

What happened in the past is relevant for many reasons. It shapes politics and in this case fiscal policy.

All those people from the 70’s and 80’s fear a return to what they experienced. That’s high inflation (a monster) and high unemployment. Successive governments who came of age after these periods have done everything they can to avoid these. That lead to a liquidity response to the financial crisis, I.e. cheap borrowing. Which kept us in our houses, gave us cars and tech and created new agile jobs. Resulting in the housing boom and an expansion of low paid and insecure jobs.

We aren’t seeing a return of the 70’s. When housing was plentiful and affordable and jobs where unionised. We are seeing the 1930’s. Inflation, job insecurity, a lack of decent housing and a worldwide financial crisis. Oh, yes and a government with no response mired in corruption and incompetence. Maybe we shouldn’t be looking at British history.