Should we have a national ‘no spend August’ to help lower inflation?

[ALady78]

Like many people I’m really concerned about high interest rates. We’re actually still in a fixed rate mortgage deal until early 2025 so I was hoping things would calm down by then. But now they’re saying interest rates will have to go higher than previously thought and I’m already panicking about what we’re going to do.

So if the idea behind higher interest rates is to curb spending then why haven’t they clearly said this? I’ve got this from the Bank of England website today:

‘Higher interest rates will make sure inflation comes down by affecting spending habits in the UK.

This happens most directly if you have a mortgage or you are paying back a loan.

Either way, you may have to spend more on these things. And that means you will have less to spend on other things that are captured in theConsumer Price Index (CPI) measure of inflation. This is the measure of inflation that the Government asks us to target.

Food, housing, transport, and household bills are everyday essentials. You can’t choose not to spend on those. But you may put off buying other things.

Also, higher interest rates may mean you are less likely to want to take out a new loan to buy things unless you need to.’

If this is the case shouldn’t we all stop spending immediately on things which aren’t essential? No new household items, takeaway’s, days out, clothes etc. I’ve carried on as normal at the moment because we can, but I would stop if it would help. I mean, I know they always say ‘interest rates have been increased to curb spending’ but then why doesn’t Rishi hold a press conference and CLEARLY request us to stop buying ‘stuff’ if that’s what they need us to do?

Is the solution for us all just to stay in and buy only basic food for the rest of the summer?
But then won’t people who make or provide ‘non essentials’ lose their jobs if we stop so how does that help?

That would lead swiftly to National Insolvency September.

In August? With three children on school holidays?

I think it's a bit more complicated than that.

Summer holidays seems like a spectacularly bad time for that plan. Food and fuel are driving inflation right now, not extra spending, so I doubt this will do what it's supposed to.

No. Spending would just be deferred a month.

This. Do you want the country to go bankrupt OP?

How do you sell that to businesses that rely on selling stuff to survive? Tell them to suck it up? How are you going to make up the shortfall in VAT? Won’t everyone just spend more in the following month so we’re back to square one?

Cool. There's absolutely no companies at all in the UK that have seasonal trade that takes place in August. None. Not one.

So can someone explain if this isn’t the answer why the interest rates are being increased? Is it to stop people spending or not? Because it literally says on their website they’re trying to affect the spending habits of the UK.

Can you not see that there's a big difference between increased prices stopping some people from buying some things, in particular, those getting loans to do so, and your suggestion of everyone stopping spending on anything?

Yes OP. It is directly going to curb the spending of the population who have tracker mortgages and fixed rate renewals. It will reduce the number of remortgages as well. People will less likely buy new cars on high interest rates. It is like putting the breaks on. It is the Bank of England that sets the interest base rate - so politically our Govenment don't get blamed for the massive loss in peoples disposable income and living standards. It has a dampening effect inflation. It does shock me that the news reported economic growth today despite the interests rates. To me that is a signal we have some way to go...

What causes inflation?

• Demand-pull. The most common cause for a rise in prices is when more buyers want a product or service than the seller has available. ...
• Cost-push. Sometimes prices rise because costs go up on the supply side of the equation. ...
• Increased money supply. ...
• Devaluation. ...
• Rising wages. ...
• Monetary and fiscal policies

I would add greedflation, where businesses stress test the consumer to see what they are willing and able to pay.

If you look at those 5 reasons, all are relevant to some degree to where we are now, some more than others.

I also think Sunak would be committing political suicide if he went on TV and told everyone to cut their discretionary spending to combat inflation.

then why doesn’t Rishi hold a press conference and CLEARLY request us to stop buying ‘stuff’ if that’s what they need us to do?
That would go down like a lead balloon and probably encourage a lot of people to do the opposite.

Also on the flip side it encourages people with money to save it...so not to spend it.

As interest rates in the UK are now some of the highest in the world. It will mean foreign money will be moved to UK bank accounts, which in turn will strengthen the GBP against the Euro. We will probably go back to the times when we used to go abroad and marvel at how cheap it is.

I also think Sunak would be committing political suicide if he went on TV and told everyone to cut their discretionary spending to combat inflation.

That's the message which has been given in my country - although not by the PM. Doesn't seem to be having much of an effect however.

I mean people aren't stopping spending.

I’ve carried on as normal at the moment because we can, but I would stop if it would help.

Perhaps if you have the option to cut back, put that money into a savings account and pay off some of your mortgage when it's due for renewal. You'll earn more in savings than paying it directly off the mortgage or spending it if you can avoid it.

That's interesting @Aslanplustwo , where are you ?

I just think due to Sunaks personal wealth it would go down like a lead ballon here, and some of the press would have an absolute field day.

Jesus fucking Christ no!!

As a small independent retailer struggling as it is all that will happen is that thousands like me will go under and become a drain on society.

This is personally one of the most terrifying suggestions I have ever heard 😳

That you, Nadine?

NZ. However, as I said, it wasn't the PM who said it but the Governor of the Reserve Bank - he also suggested the government rein in their spending.

Honestly? Way too simplistic.

A big component of our inflation is imported, and there's not a great deal we can do about it.

House prices need the cheap debt to end and bring down values in real terms.

Ah. Us peasants are to blame for the fucked up economy. Not 'Trussenenomics' or the now completely discredited 'Austerity' policies of the previous Tory administrations? Since 2010.

Ahem. Can we mention Brexshit?

So we don't buy anymore food.... This can't be a real post? Surely you know economics is not that simple 😆

i thought it was the fault of those who gave up work, took early retirement