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?

I believe there are many more savers than borrowers, and so the number hit by mortgage increases is relatively low. It's just they're what we always hear about in the news, and the mos t vocal when interest rates rise

The only thing that increasing interest rates have done for me has plunged me into debt . I had no personal debt apart from dental finance before all of this cost of living . Before all of this happened I was in a long term relationship, could afford house , car etc: now I am a single parent - mortgage has trebled , electricity and gas trebled , food and petrol and everything else has increased . I don’t see how increasing rates is making things better for people . I am using credit card for everyday expenses sometimes even counci tax . This is not going to end well for people with huge mortgages . Mine is only 85k and still unaffordable!

Higher interest rates makes all forms of borrowing - mortgages, credit cards, bank loans etc - more expensive. This will mean that some people decide not to borrow the money and spend it on houses, cars, new kitchens, whatever. This reduces spending in the country, and at the same time encourages people to save, as they will be earning more interest on their money. As people reduce their borrowing, it should encourage manufacturers and retailers to lower their prices to sell more goods. It's difficult to actually calculate how much to raise interest by in order to reduce inflation without sending the economy into high unemployment.

The problem with inflation is the longer it persists, the more chance it becomes imbedded.
We are in the imbedded situation now which means wages are chasing prices because the Labour market is stronger than expected and workers can force pay raises.
The Bank of England have been too timid in increasing rates at to a slow rate and are now in backed into a corner. If they carry on raising rates they induce a recession and housing crash, if they hold off, inflation will persist and people will expect prices to rise and act accordingly.
I think what has been underappreciated is how much money was saved in the lockdowns and people who now work remotely that previously didn't have had defacto pay raises as they can save on commuting costs therefore have quite a bit more money to spend.

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.

Tax the likes of Jacob Rees-Moggs more -

a lot more. Why does anyone 'need' more than £1 million income?

Let's all become communists then. Because that always ended well...

All of this.

The problem is that raising interest rates affects most those who borrow - so many people who ‘just about manage’ their borrowings on credit cards and mortgages will now struggle.

However, as awful as it sound, interest rates HAVE to go up. They were too low, money was too cheap, and saving was disincentivised.

If they're trying to incentivise savings they're out of luck. Any spare money we had is now paying the mortgage and we can't afford to do do a fat lot.

I'm working a second job now too so I'm poor, grumpy and putting on weight as I'm eating cheap crap food because the stuff we'd normally eat had doubled in price.

I don’t think anyone is suggesting communism but currently the gap between the well off and the economically deprived is widening like mad.

I know people who are saving £500 a month and have no mortgage who think rising interest rates are great. People like JRM with even more money in the bank will be laughing their heads off.

other friends are buying rental properties for cash because the rental prices are rocketing.

Let's all become communists then.

Absolutely yes to this.

Because consumer capitalism has worked out so well for the planet

Oh - hang on - maybe not. There's a lot of very rich people lining a lot of other very rich people's pockets and round it goes. We have global warming to think about. And in around 50 years the planet is going to look very different indeed.

The principle of helping others collectively instead of just helping yourself and hoarding resources might actually have something to it.

This is what I think put better.

My Dad is an economist and I’ve discussed it all with him so I do under, but I it clearly isn’t working and is doing more harm than the good it hopes to achieve

If they are trying to incentivise saving ( not that anyone has any money) then savings accounts need to raise their interest rates as well as mortgage companies.

The thing I don’t get is that when the cost of mortgages goes up, doesn’t that put upwards pressure on wages, as people still in the workforce are the ones who mostly have to pay mortgages? And upwards pressure on rents, so that landlords can still pay their mortgages? And provide retirees with higher returns so they have more disposable income? So why do economists say that raising interest rates doesn’t have an inflationary effect?

Interest rates are rising in all Western countries (not sure about the rest of the world). It’s certainly not just a UK thing.

They are trying to reduce circulating money. Trying to incentivise saving is one method, but the main method is essentislly charging people for their debt in the form of increasing interest payments. In an ideal world this would take the heat out of inflation as no one has spare cash to spend on things. However, in reality with a strong labour market it causes wages to increase to chase inflation ...and so the inflation cycle continues upwards.

One side effect of increasing interest rates is eventually reduced economic growth (no one can afford to borrow, including businesses) and therefore job losses. The BoE looks like it will hike interest rates again in June to be seen to be taking inflation "seriously", this prove the tipping point to put us in recession in 2024. The labour market will slow and unemployment increase, and therefore domestic inflation falls. Then at some point we start the whole cycle again whereby they have to reduce interest rates in order to perk up economic growth.

Sunak was warned the other day of a recession in 2024...https://www.theguardian.com/business/2023/may/26/rishi-sunak-warned-over-possible-uk-recession-in-2024 I think the IMF predicted a UK economic "contraction" as well and therefore the future return of "pre covid interest rates" in the future.

I am not an economist, just someone about to go on maternity leave and trying to predict/research what our mortgage fixed rate might look like in future, which is probably a fool's errand.

Well if its supposed to stop spending it has had the opposite effect on me. Knowing I will need a new car in the next year or so, k decided to buy one before things get even more expensive. I need a decent car for work so its not really something I can decide not to buy. I bought one yesterday for £8000, in a years time it could be £9000 or more and my salary probably won't have increased in step.

Not to mention the fact that the credit could be withdrawn in 12 months time. Currently I have credit card companies throwing money at may interest free how long that will last who knows.

Hahaha save what?! My money is all gone at the end of the month

That's you though. Other people will go oh help I can't afford a car I'll buy a much cheaper one.

Save?? LOL is if there is even enough money to save at the end of the month with all the price and rent increases!

I didn't use credit. I used savings. Its wiped me out but no car= no work.

Many do have spare money I agree. Holidays are back to pre Covid times and many sectors up. I think it’s just the striking sectors that are not.

Demand is still there, labour market is strong and inflation is pretty much supply side anyway.

It is bad for it to go on though and interest rates are the only tool they’ve got. So even if it’s hard to crack they will use it.

Labour market might start to shrink at some point, also due to advances. Just the start but announcements of big job reductions beginning.

I do think people with spare money who are planning to make a big purchase eg car, holiday, home improvement will think better buy now before prices increase, this was seen in the 70s when people would rush after payday to buy eg white goods before the prices increased as inflation was 25% at one point

So for every squeezed mortgage payer there'll be a spendy person with money

Jesus Christ - another person who thinks that making any attempt to change our current system, or even just tweak the tax rate slightly for the very rich, must mean you’re a communist.

Our current capitalist system has already been changed one way - hence the massive transfer of wealth to the 1% over the lasted years - why can’t it be changed back the other?

last 30 years