to believe interest rates should be at least 4% already, and rising fast?

You are making the same point that I am.

the OPs logic is still horrifically flawed and made on baseless assumptions.

fwiw, I got my degree in economics from Durham uni…it’s not really relevant other than that it means I am aware that macro economics is theoretical

We are facing a huge crisis our entire economy is built on ever larger consumption and debt. The government decided to do QE and historical low interest rates to promote growth. They then printed huge amounts during COVID as the saying goes money does not grow on trees. If our currency becomes worthless everyone will be much much poorer. It's a global economy, interest rates rises on mortgages will mean fuck all if you have to have a wheel barrow full of pounds to buy a loaf of bread.

Let’s try a different approach.

What, if you were BoE governor/Chancellor of Exchequer, would you prefer to do in this situation?

@Fififelix

"We are facing a huge crisis our entire economy is built on ever larger consumption and debt. The government decided to do QE and historical low interest rates to promote growth. They then printed huge amounts during COVID as the saying goes money does not grow on trees. If our currency becomes worthless everyone will be much much poorer. It's a global economy, interest rates rises on mortgages will mean fuck all if you have to have a wheel barrow full of pounds to buy a loaf of bread."

++++

And tomorrow Liz Truss policies are to be revealed and speculated will include :
A 5% cut in VAT as a cost of £38 billion a year
An increase in the personal tax free threshold to £12750
A 5 p. It in fuel duty
Increase in defence spending to 3% would cost £157 billion over 7 years.
a freeze of energy prices would cost £90 billion a year.

And all of this will be funded by an increase in Gov debt thereby creating new money. It doesn't take a genius economist or an economic historian to point out that you don't fix inflation by creating/ printing new money.

Liz Truss printing more money getting easy votes and kicking the can down the road. The economy is screwed.

I wouldn’t be so foolish as to even make a suggestion. I’m not educated enough to do so.

I would expect them to gradually increase rates (quickly as they have been doing) but not so rapidly that it cause the crash of the housing market and for scores of people to end up losing their homes.

YABU

Raising interest rates too high would be reckless in the current economy. People would lose not only their homes, but also their businesses and their jobs.

Thousands of people left unable to pay their mortgages, coupled with falling house prices, could lead to a collapse in the banking system as banks would be left with a mountain of bad debt.

The pound may be falling, but so are many other currencies, including the Euro and the Japanese Yen. This problem isn't specific to the UK.

You're being ridiculous because this inflation isn't being driven by consumer spending. It's being driven by the war/energy prices.

The old rein in of consumer spending to reduce inflation trick simply wont work in these circumstances.

It will merely result in more businesses closing faster.

Agree with the OP. there seems to be a lot of debt junkies here who don't realise that the era of cheap money Is over. The pound must be protected above all else

I broadly agree with you, inflation is much more of a danger than a recession, interest rates have been too low for too long. The BOE is supposed to be acting in the interest of the UK as a whole, it’s ability to finance itself not individual householders (I know that sounds callous but it’s true, we have to be able to raise borrowing on international markets, I believe currently 12% of government income goes to servicing debt, if it got expensive and we were spending a lot on energy relief the UK will be in a horrible position a few years down the line). It is also politically extremely difficult.

My concern is that it’s a supply side issue not a demand side issue. We would be pushing people already on the edge over it. Having said that as I said before the BOE job is too look after the country as a whole and enable the UK Plc to keep on an even keel. A winter of increased energy bills will push demand down by itself. The FED has basically said it will push the USA into recession to control inflation. You need a combination of reduced energy costs and rate hikes.

I think people need to be realistic about government spending. A week pound will cause a massive increase in the cost of anything we import (energy, food, clothes, electronics) governments will find borrowing money gets a lot more expensive. Services would have to be cut further and taxes would have to go up but primarily on people/businesses that can’t leave the country on a whim.

it’s super shit basically. There are very few good options on the table, the actions that would steady the UK for the medium term would be awful short term and any politician who does it would be trashed. The popular option of not raising rates, cutting taxes on a bunch of stuff and borrowing more money to support households would leave the UK extremely vulnerable, that politician would be lauded but they would have weakened the UK.

You are of course correct. People who over-stretched themselves on mortgages only have themselves to blame.

If you can't afford 15% mortgage rates you can't afford to own your house.

Far too many debt junkies that borrowed beyond their means if they can't pay their bills that is their issue. The Boe are behind the curve and need to act fast. We are approaching a currency crisis for GBP.

The reality is, interest rate markets have already priced in huge rate rises, meaning the BoE don't need to actually adopt them. 2y GBP swap (fixed) rates this morning are 4.22%, 5y at 3.76%, 10y at 3.40% and 20y at 3.20%. These are the rates at which big corporates are borrowing, meaning the market has actually done the work.

It's generally recognised that whilst the ECB will increase rates by 75bps on Thursday, it will do little to support the EUR.

www.reuters.com/markets/currencies/big-rate-hike-wont-save-euro-energy-shock-deepens-2022-09-06/

It's not guaranteed that raising rates leads to a stronger currency - look at the mess the Central Bank of Hungary have got themselves into. Their base rate equivalent is now 11.75%, inflation is still about 13%, with food price inflation around 50%, and whilst the Forint picked up a little (1.3%), it's still one of the worst performing emerging market currencies. If the economic fundamentals aren't there, you can raise interest rates all you like, but investors won't buy it.

This is the sort of thing pensioners without a mortgage say.
I'm middle aged and I have more than 50% equity in my home but if interest rates were15% it would basically more than triple my mortgage repayments and essentially be nearly all of my take home pay. Despite me not borrowing even close to the maximum the bank would lend when I took the mortgage out.

Add onto that a tripling in energy prices as well and that would be considerable more than I earn so I'd be screwed. I think I'm similar to most people my age. Very few ordinary people could afford a tripling of their main outgoings. Many pensioners are somewhat protected as many own their homes outright and they get fuel allowances. Many have savings and would be pleased with higher rates, but please don't pretend people who couldn't manage deserve it because they are "debt junkies"

Does anyone else get the sense these types of post actually come from Tory party head office/Team Truss (or indeed Labour party HQ)? Pay for proper focus groups!!

@Rinatinabina

"it’s super shit basically. There are very few good options on the table, the actions that would steady the UK for the medium term would be awful short term and any politician who does it would be trashed. The popular option of not raising rates, cutting taxes on a bunch of stuff and borrowing more money to support households would leave the UK extremely vulnerable, that politician would be lauded but they would have weakened the UK"

@Fififelix

"Liz Truss printing more money getting easy votes and kicking the can down the road. The economy is screwed"

++++

Two excellent posts that sadly summarise the critical situation we are in.

The problem lies with voters always wanting easy answers or more accurately voting for politicians that offer easy answers.

2008 Financial crisis - rather than let banks go under, see shareholders lose out , see mortgages and loans called in, savings above the protection limit (which was very few people) wiped the Government opted to print money.

2020 Covid - rather than let's get through this best we can and accept there will be excess deaths in the over 80s as per the 1957 and 1958 pandemics - let's print more money and shut the economy down.

2022 - war in Ukraine and high inflation- rather than throw Ukraine under a bus - let's fix inflation by printing more money and for Liz actually cut tax as well.

Every time creating a bigger problem for later rather than dealing with the problem today. Or alternatively every time the can gets kicked down the road the can gets bigger- much bigger.

Correct,, we have a hugely ignorant populace that have voted in spin doctors and PR merchants for well over 10 years now and this is the cost of it all. We have a terrible economy and have socially, politically and economically harmed ourselves.

Of course interest rates need to go up but its not popular so wont happen and we'll plunge further down. Not that interest rates on their own will fix the problems we have now,, it will only go some way to helping

@1dayatatime is super naive. It is not as simple as throwing Ukraine under a bus. We have already done that with Crimea. Russia will not stop. Putin thinks the West is decadent and will quickly give up support for Ukraine. His plan is to invade Ukraine and then start invading NATO countries.
If everyone thought Putin would stop at Ukraine, the UK and EU would not have supported Ukraine. They largely understand that Ukraine is the front line.

@1dayatatime is wanting simple solutions to complex problems i.e let Putin successfully invade Ukraine so we can get back to normal. That is not realistic.

What you have to understand is that we are already at war with Russia. It is a soft kind of war, but we are at war.

This is the sort of thing pensioners without a mortgage say.
I'm middle aged and I have more than 50% equity in my home but if interest rates were15% it would basically more than triple my mortgage repayments and essentially be nearly all of my take home pay. Despite me not borrowing even close to the maximum the bank would lend when I took the mortgage out.

Agreed @AdamRyan My LTV is actually 25% but if my mortgage payment tripled - along with petrol, gas, electricity, food, clothing childcare costs? Nope, I couldn't afford what is actually a modest house. Because salaries haven't increased in line with everything else (and haven't done in a really long time).

@CornishGem1975 There is a difference between what is best for the overall economy and what is best for some individuals.

It's not "some" individuals.

And unless your mortgage payments are interest only, I am not sure why your payments would triple.

Maybe you need to have a play with a mortgage calculator and put in today's rate vs 15% on a 20 year mortgage