Salford Business School economists respond to the Bank of England's interest rate rise
Dr Tony Syme, University of Salford Business School's macroeconomic expert, and Dr Maria Paola Rana, Lecturer in Economics and Finance, share their comments on the Bank of England's interest rate rise.
Dr Tony Syme, macroeconomic expert, University of Salford Business School, comments:
"Another Monetary Policy Committee meeting, another rise in interest rates. But this time there is a particular significance. It comes on the same day as the biggest strike in NHS history. In less than four weeks’ time, junior doctors will be balloted on strike action.
At least everyone agrees on the main cause of the current strife. Inflation. It has significantly reduced peoples’ standards of living and they are rightly angry about it. It is an economic illness that the Bank of England has a responsibility to cure.
Initially, Andrew Bailey had asked people to cure themselves, that they should “think and reflect” before asking for pay rises. Unsurprisingly, people couldn’t relate to someone on £575,000 per year giving them advice on a cost-of-living crisis. So, the Bank of England has turned increasingly to sizeable increases in interest rates.
But this is a medicine that takes a long time to take effect. Three-quarters of mortgage customers were not directly affected by these interest rate rises as they held a fixed rate mortgage. For four million households, their fixed rate will end next year and, according to the Bank’s Financial Stability Report, their annual mortgage costs will rise by £3,000 per year.
One thing is clear. The Bank of England’s remedy for inflation is making the patient seriously unwell. They are focusing on the symptoms, not the causes. It’s time for a different remedy."
Dr Maria Paola Rana, Lecturer in Economics and Finance, University of Salford Business School, comments:
"As largely anticipated, the Bank of England (BoE) has today increased the base interest rate from 3% to 3.5%, the highest rate since October 2008.
The move from the BoE follows the increase of interest rates in the US, as announced yesterday by the Fed. Rates in the US increased to 4.25%-4.5%, up from 3.75%-4% in November.
This week’s further increase in the cost of borrowing comes despite the warning from the UN (United Nations) to Central Banks to not increase interest rates. In fact, according to the latest Trade and Development Report for 2022, published by UNCTAD (United Nations Conference on Trade and Development), further “tightening of monetary policy in advanced economies in combination with inadequate multilateral support” risks fuelling a recession with longer damaging consequences than those caused by the 2008 financial crisis.
It’s clear an era of low interest rates should now be considered over, even if interest rates are not expected to increase as much as initially feared. Despite today’s increase, high-street banks are now offering more mortgage deals and lower interest rates than those that were being offered following the mini-budget in September."
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