Thursday, July 05, 2007

Bank of England Raises interest rates again to 5.75%

The Monetary Policy Committee of the Bank of England has raised interest rates again to 5.75%, the fifth rise since August last year. There are indications that they may rise again soon to combat inflation and money supply.

Ultimately that is going to hurt many borrowers. Expect bankruptcies and repossessions to rise.

The Bank of England statement is here and the BBC has this.

4 comments:

Marquee Mark said...

So the cost of money has gone up by over 27% in less than a year. Probably another quarter to a half point rise before next year's May elections. Good job the price of money isn't counted in the inflation numbers.....

Worth pointing out to those Labour numpties who scream "FIFTEEN PER CENT!!" whenever interest rates rise, that if they go up just another quarter point to 6% - they will be back to the rates they inherited from Ken Clarke in 1997. So Labour will have had no net effect on interest rates after ten years. Rather cuts them off at the knees on the economy.

There is going to be some loud squealing from a whole generation of borrowers who thought Gordon was the God of Cheap Money For All Time and so gave him their vote in 2001 and 2005. Wouldn't count on their support next time Gordon....

Andy Cooke said...

One point to bear in mind:

The average amount spent on mortages (as a fraction of disposable income) today is very similar to that at the height of the eighties/early nineties boom. The big difference is lower interest rates.

This means that a small increase in interest rates today equates to a large increase back then, in terms of extra income required.

As an analogy: If you are paying a certain amount on 5% as you were then on about 10%, an increase of 0.25% in base rate today will have the same effect as an increase of 5% then.

An overall increase of 1% these days (say, over a year) will hurt like a rise of 2% then.

Benedict White said...

Marquee mark, yes it is a fair rise in the time and as you say is putting pressure on people.

Andy Cooke also makes a very valid point about mortgage payments as a fraction of earnings.

If interest rates rise again and I suspect they will, then it will hurt.

Courtney Hamilton said...

To tell you the truth, I don't think Andy is really comparing like with like - to the credit of the Tories at the time, at least they had the political balls to manage interest rates (IR) themselves. IR in the past was a political tool that our elected leaders could use to control the macro-economic of Britain PLC. If the public didn't like the way politician managed IR and the economy they would be held to account at the ballot box.

The first thing Gordon Brown did when he became Chancellor was to hand over control of IR to the bean-counters at the Bank of England, he basically handed over responsibility and control of one of the main fiscal tools to an un-elected body that is accountable no-one.

Brown has just absolved himself of any real macro-economic responsibility over key elements of fiscal policy, he has just left that to unaccountable money men who couldn't care less about peoples mortages.

Bendict is right, the future for lots of people looks like it will be very painful in the wallet department.