To not understand why the answer to inflation is to raise interest rates?

[BluebellBlueballs]

Is it to make everyone so poor due to mortgage rises that they cannot afford to buy as many things?

Put simply, yes. But it doesn’t seem to be working!

This is what gets me.

Many people don't have mortgages .They rent or they own their house. If you own your house, then you are not affected by mortgage rises. In fact, higher interest rates increase the interest on your savings.

I think it's supposed to affect businesses as well with their loans

It's to encourage people to save rather than spend. In theory, if people are less prepared to spend on goods now it will put a downward pressure on prices as demand for things will be lower.

It's not intended to raise mortgages specifically. It's to reduce circulating money. One way it works is by incentivising saving - better interest rates mean it's more attractive to save and make a profit.

Less circulating money means that demand is reduced and prices fall. More circulating money means that demand is increased, so prices increase.

One place to start is here:

https://www.bankofengland.co.uk/explainers/will-inflation-in-the-uk-keep-rising

About half way down there is an answer to your question.

They're trying to cause a recession, not that they'd ever come out and admit that.

Because it’s the only tool they have at their disposal. The problem is people are having to spend on essentials and many can’t cut back spending on those things. The rich don’t care either way.

I confess I have no understanding of economics.

but to me I agree they’re trying to cause a recession. They want everyone so skint that they stop buying “stuff”, which they are hoping will cause prices to come down. But will also likely cause businesses to go bust and jobs to be lost.

and from where I am the current situation is affecting the financial bottom half of society but not the top half as much. I mean obviously food prices, fuel prices, interest rates are rising for everyone but there’s a significant number of people who can ride that out and still spend and shop. But the skinter people can’t pay their rent, mortgage, buy enough food.

I feel rather than raising interest rates the govt need to do something which affects the wealthier disproportionately to the less wealthy….but I don’t know what that could be.

Well, that, and to discourage people from borrowing money they don’t have. Banks and lenders couldn’t care less about what that means for first time buyers

FTB here. We were viewing houses but now we’ve stopped. Deposit all saved up but we only have 5%, 10% at a push. We’ve decided to stay in our (very cheap) rental as we do have a secure tenancy and it’s guaranteed that the landlord won’t sell. It’s a two bed, so we’re going to start our family here we think unless we grab a huge bargain which let’s face it is relatively unlikely. Our rent here is 600 cheaper than a mortgage on the same size house would be, per month. That £600 is the difference in savings for other things, car repairs, holidays, meals out, maternity leave length, you know, the things that make life living. I refuse to buy a house just to say we’ve done it if we are going to be house poor and waving all our money away in interest. We badly want to be home owners but the costs associated with the current rates scare me senseless. I’m sure there are many others in this position.

Many people don't have mortgages .They rent or they own their house. If you own your house, then you are not affected by mortgage rises.

Loads of those people whom they're renting from also don't (outright) own their property - they too are paying a mortgage on it. If their mortgage payments increase, there are several ways in which that can cause instability and pain on the part of their tenants.

I don't understand either why the rush to discourage people from spending money, when what they're spending it on in millions of cases is things like food, fuel and transport: things that they simply cannot do without.

I suppose the official line might be that they want to raise the interest rate in order to 'cool consumer overconfidence', but this sounds very like code for 'we want to force people out of their homes on to the street and/or to sit freezing and hungry - as punishment for wanting a home and adequate food and warmth'.

Never forget that your entire life can be quickly and deliberately turned upside down at the whim of mega-rich bankers who think that their balance sheet looks a little less tidy than they would like it to be.

Very basically, it discourages spending and encourages saving. I think.

It's also to protect the currency against the dollar

It's amazing that they injected so much money into the economy for oooh 15 years, since 2008, then the pandemic injected more, on steroids. Then they are shocked that inflation rises. I don't fucking buy it, profiteering cunts.

Its not in this case.

I think they need to stop it because it’s going to drive people into poverty.

Its obviously not working and it’s just widening the gap between the rich and poor.

Problem is a large chunk of inflation is being caused by non-discretionary spending on things like fuel and food.

Re: interest rates - plenty of renters, as well as homeowners, are in non-mortgage debt. Interest rises on that debt are supposed to incentivise not adding to it.

No, this idea that people will save "spare" money is ridiculous. People don't HAVE spare money after years of overinflated house prices combined iwth cost of living crisis.. They are spending all they have just to survive. They are buying ESSENTIALS, not fripperies.

Yes

Yes. I'm no economist but I understand the whole argument (in text books, let's face it) about raising interest rates to reduce inflation. However in real life, in certain circumstances such as global economic crises/pandemic/war, that theory should just go out the window. Why they are insisting on trying to push this through when clearly it is NOT working, as the things that people are buying are essentials eg food, fuel, energy, housing etc. I just see people anxious and burnt out just trying to make ends meet.

Lots of people do have spare money. No mortgage / low mortgage. Good income, children gone, retired on full final salary pension

Very basically, it discourages spending and encourages saving. I think. But does it? When inflation was 2% and the bank rate was 0.5% you could get interest on savings of about 1.5%, Which meant your money was losing value by 0.5% a year.

Now inflation is, what?, 15% at the moment, and the bank rate is 4.5%, you can get interest rates of 7.5% or so. So now your money is losing 7.5% a year. Not much of an incentive to save!

I'm aware of that. I'm in a position of privilege myself. But I'm over 50. The majority of the generation below me, or 20 years younger, are struggling and are working themselves to the bone, seeing little of their kids, in well-paying jobs ust to try and achieve what I had for a lot less effort by my late 20s. As a country we should be working for the best interests of the working majority, not the retired/financiall privileged minority, even if it's to our own financial detriment.

@CurlyhairedAssassin of your generational cohort I would suggest you would be in a tiny minority of people who see it that way.
Op, the theory is that raising the cost of debt/borrowing on mortgages or other expenditure curtails spending and keeps the lid on inflation. This only works if the inflationary pressure comes from discretionary spending and above inflation wage rises or asset rises, none of which is currently true....

Nearly 3 years of lockdowns and restrictions with borrowing money off the trees it grows on and then throwing it at the most insane shit modern civilisation has known has devalued it and caused inflation and the cost of living crisis. The process is hypothetically reversed by making less money available in circulation.

Loads of people have a lot of spare money. Many many older people out there with good pensions, eating out a lot and holidaying frequently. I work with older people and struggle to get hold of them half the time as they are always on holidays, day trips etc. Of course there are some struggling but so many aren't. i was doing some home visits relating to my job last week and needed the loo so popped into a country pub, it was packed mid week with pensioners .