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?

This forum is living proof of economic illiteracy in majority not the population. This is why we get the policy makers we have, because the general public understands nothing about how the economy works.

Well the problem with it is my credit cards are all interest free so I have the money I’ve got in the bank. I’m earning interest on the increased rates why would I stop spending? So basically this is nonsense isn’t it?

@ALady78 your suggestion won’t help. What it will do is mean money is held back and then explodes back into the economy come September possibly heightening inflation further.

The only thing will calm it is wages staying static and demand lowering due to this and heightened rates.

So share your great knowledge and pearls of wisdom with us.

Another point is that some of us are spending on credit cards for the consumer protection, even when we have cash in the bank. Is this factored in?

Precisely at any given time i hold about 10k on cards, at certain times of the month it could be £5,000

What a narrow minded view. Not everyone's situation is the same as yours. I work in a seasonal based service industry and would suffer terribly under your plan. Spending keeps other people in jobs.

Interest rates are not high, they are approaching the historic average.

We've had artificially low interest rates for around 15 years, which encouraged a gigantic bubble in the housing market and in personal debt.

Add shitloads of money printing to bail out the corrupt-as-fuck banks in 2008 and ditto for COVID and voila! you have to raise IR rates now or your currency is toast.

This is just the start of it IMHO...we're all fur coat and no fucking knickers in this country and the bill for said garment is coming due.

Ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha

Oh wait, you’re serious!

She’s right too.

Well said and thank you @VikingsandDragons

As for the comments about economic illiteracy in the general public from another poster, are you surprised? A lot of policy makes very little sense to those of us engaged in day to day survival and personal budgeting. Economics isn't- or certainly wasn't when I was at school in the dark ages - a normal part of the curriculum.

National and world economics are nothing like household budgets which I know is stating the obvious, however the price of milk going up in the UK because a stock market trader in the US farted and a butterfly flapped it's wings on the wrong Thursday in Ukraine seems to be about the gist of it and utterly non-sensical.....

And even if we could educate ourselves enough to understand all the machinations of geo-politics and effects on the market, and oh yes Brexit and embargo's and sanctions etc etc it doesn't help with average Joes day to day living costs.

Not to mention that every government changes its mind on economic policy according to how much money they want their rich chums to trouser....

Ooh my blood pressure is rising dangerously now.

Best leave it there before someone asks if I'm "quite well" ..... because no, no I'm not, and neither are vast swathes of the population as we're pushed from pillar to post by forces outside of our control.

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.

Oh, I dunno…He could have a catchy new slogan. That always seems to do the trick -
’Stay In, To Help In(flation)’

😀

It's much more complicated than people just buying a takeaway. For a start most businesses thrive the most in the summer holidays, so you are condemning them to closing and then that would lead to a recession if its on a large scale. Pete would definitely struggle with mortgage payments if laid off.

Rampant QE and low interest rates for far too long have caused this inflation among other factors. Too much QE usually leads to inflation and currency debasement. Where did that money go?I hear you ask......Well we can all guess.....

It is shit for renters and homeowners, I don't lead an extravagant life and have no debt, but I still feel I'm being punished for other people being irresponsible and not doing the maths and relying on perpetual low interest rates, although many people over extended themselves because they felt that was the only option sadly.

I'd like rates to go up to normal levels again (average of 5/6percent) and for house prices to come down. Think of all the businesses that would go under if people suddenly stopped spending - it would be like another lockdown. There are winners and losers in everything. Buying a house is a gamble, not sure bet. Should the whole country act only in the interest of homeowners?

No.

Then he flounces off to his swimming pool in trunks and sunglasses that cost 1k each....

I am already spending on necessities only, so I guess I'm not right match for this kind of protest.

I think so, when inflation hits high you will have a lot of repossessions, and also landlords are selling up, so you may see flood of homes to the market and large drop in prices.

Interest rates have been incredibly low recently, they were bound to go back up at some point. As someone with no mortgage and savings, I am not unhappy with current interest rates. I had my turn at paying a mortgage with 15% interest.

One issue isn't just the interest rates, but the high cost of housing. If house prices were more in line with where they were back in the 80s/90s, and 2 times salary,the rise in interest rates would be unpleasant but more manageable.

You need to educate yourself more. How ridiculous.

You suffered some everybody else should ? no wonder everybody hates baby boomers. You also had above inflationary pay rise is that basically paid your mortgage is off and MIRA’s so all the poor people paid for your house. Perhaps it’s your turn to give back and pay some national insurance out of your pension ?

I suspect one of the unintended /inadvertent effects of the col crisis and higher inflation may be to halt or even maybe slightly reverse the rise of house prices. That will only happen if lenders are happy to keep lending though.

A very simple way of looking at inflation is too much money chasing too few goods. It’s partially supply and demand. When goods are in short supply such as gas and housing, the price goes up. We then demand more money to pay for such increases. So it’s a spiral.

Conversely not buying goods from British companies endangers jobs. That’s more cost for the state. We have to be careful. We do not stop trading in the summer or do more business in the summer. However we do take holidays in August. We could stop buying foreign products. That usually helps our economy. Not buying from British companies harms us. Company closures harm us all.

We have historically tried to curb inflation by curbing wages and raising interest rates. These don’t help with supply side shortages. So overall the uk needs better supply and productivity. Productivity and growth increase wages fairly. They have been earned. We then get more tax to pay for services and those who staff them. We have neither at the moment yet want the services and higher wages in the public sector. We are going to have to rein back our wants until we are better placed to pay for them.

The City and associated industries are massive tax payers and earners for GB. Banking is shifting out of London. We need to make sure we keep relevant and maintain our global position. Others want it and Brexit has cost us all a lot. (End of essay!)

I think a lot of people already have reined it in.

I remember my mum's friend being repossessed in the 90s and being homeless and she and her kids spending as much time as possible in our house because the room the council put them in shared a bathroom and kitchen with drug addicts and sex workers.

The Tory Mortgage penalty is like an extra tax on those of us with mortgages.

The Tories have fucked up the economy and we are paying the price.

Not to worry though, Boris Johnson bought his £4 million house in Oxfordshire with cash.