Home Breaking News Out of control BoE interest rates have created a vicious cycle ‘with a nasty sting in the tail’

Out of control BoE interest rates have created a vicious cycle ‘with a nasty sting in the tail’

3rd Aug 23 1:49 pm

People say to me ‘what do you care? You cashed up years ago’, but when the Bank of England (BoE) puts up the price of money for the 14th time in a row we all should be worried.

There is no doubt we are stuck riding the inflation money-go-round, but sadly with every revolution the price of a ticket goes up.

We all hear about mortgage woes, and quite rightly. Most people are going to be in real trouble when their monthly payment jumps 200%. But what about the business community? Our customers have way less cash to spend and the banks are jacking up the rates – either way the future ain’t looking so bright.

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As much as we try to put world events behind us, most small businesses – the ones that made it through the pandemic – are still in recovery mode, while grappling with the kind of energy and fuel prices not faced since the bad old days of the 1970s.

And as people cut down, or completely shut down, their discretionary spending, it’s the businesses that took the biggest hit from Covid, hospitality and travel, that are getting knee-capped again.

There are many who are still saying this is a blip and things will improve soon. I hope they’re right, because I don’t plan to stay retired forever, and my two-year stand down period will soon be at an end.

The thing that worries me about the ‘blip’ theory crowd is that every time there’s a rate rise we all borrow to stay in the game… personal credit cards, business loans, government borrowing, and each time we borrow to stay alive the rate is higher than last time. It’s an unsustainable vicious cycle, with a sting in the tail that makes an escape to more prosperous times more difficult as the BoE rate tracks ever higher.

I get that the conventional thinking is that if you put up interest rates people stop borrowing, inflation falls, and eventually interest rates will settle back too. But in the last 15 years people and businesses have got used to low rates and easy borrowing, and it seems a hard drug to kick. How high does the BoE need to go to slow this ride we’re on down?

Hopefully greater minds than mine in the Treasury will get their heads around the issues in time, and maybe part of that might be to figure out how to stop banks, supermarkets and energy companies from blatant profiteering under the excuse of Covid, War, and the Cost of Living Crisis? For me bringing these massive players under control might be the first step to salvation for us all.

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