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.

Are Savings becoming worthless as inflation hits 16 year high?

I was quite interested to hear BBC Radio 4's You and Yours reporting that inflation had hit a 16 year high as opposed to the silly claim that it had hit a 10 year high.

However the program also highlighted the issue of savings not attracting enough interest to cover inflation (certainly after tax) which means that you may as well spend money now and not save, as money in the back will lose value.

This is not good. It is already the case that there is no longer any point in many people saving for a pension as they will lose any benefits in means testing. It is therefore no surprise that the savings ratio is low and likely to decline.

Interest rates are set to rise next month which may address that, but it will also cause a lot of pain for people who are already over extended on their borrowing. Part of the problem is the economy only has blunt levers to control it. When they move, people will be hurt. The only questions are how many, and how badly.

Inflation at 15 year high, as unemployment rises

On the BBC news bulletins I have heard they keep saying inflation is the highest in 10 years. That is of course wrong, and is based on the fact that it is the highest measured by CPI in 10 years because we have only been measuring inflation that way for 10 years.

If you look at the RPI figures, it is in fact the highest in nearly 16 years, in fact it is the highest since July 1991. So why is the BBC saying it is only the highest for 10 years? Why are they letting Ed Balls spout rubbish about inflation on the basis that it is only a 10 year high rather than a 15 year high?

What is of more concern is that inflation is going the wrong way and needs to be brought under control.

The problem is that means raising interest rates, whilst unemployment has just risen. An interest rate rise is not going to help that.

Inflation in 10 year high, interest rates to rise

According to reports inflation as measured by the CPI has hit 3.1%, the highest it has been since the measure was introduced in 1997. RPI, the former measure has hit 4.8% (a rise from 4.6% last month).

Firstly this means that the Governor of the Bank of England will have to write a letter to Gordon Brown explaining why the 3% mark has been breached. It got close back in January when inflation hit 3%, but eased back reducing fears of an interest rate hike. It is clear now however that there does need to be a rise in interest rates, and arguably that there should have been one last month.

The last time inflation peaked in January I wrote this article, pointing out that inflation as measured by RPI was the highest it has been since 1991. It is not 0.4% higher and so is the highest it has been for at least 16 years. As soon as I get hold of the Office of National Statistics Website I will check, but it is obviously being flooded right now.

So much for Gordon Brown's economic miracle. Inflation now higher than when Norman Lamont was Chancellor!

Update 11:00

The Office of national Statistics report is here, and inflation as measured by RPI is now the highest it has been since July 1991, almost 16 years ago. (See here)

Inflation hits 15 year high

According to figures just published by The Office for National Statistics, the old style Retail Price Index (RPI) has hit 4.4%, its highest level since 1991. (Including mortgage repayments).

Also the Consumer Price Index has hit 3%, it's highest since it was introduced. It excludes mortgage repayments.

Whilst a lot of the increase could well be down to fuel costs, which is not primarily the governments fault, there are other causes for concern such as the ever increasing cost of housing, and how it is moving firmly out of the reach of first time buyers.

If you want to calculate your own personal inflation rate you can use the Office for National Statistics personal calculator here.

Not good news for Gordon then. It also explains the interest rate hike last week which caught the city by surprise. Expect interest rates to rise again by at least another quarter of a percent within the next two months. Some think it will hit 6% by the end of the year. Not good news for the economy at all, and not good news for Gordon Brown.

The BBC has this story here.

Update 11:55

I forgot to mention that according to today's Telegraph here, banks and building societies are withdrawing fixed interest rate mortgages. There is lots of speculation as to why, but one very firm reason has to be that they think interest rates will rise again and soon.

Also the Telegraph has this on the rise in inflation.

Update 13:23

The Evening Standard also has this, claiming RPI is the highest in 16 years, and this on banks ceasing fixed rate mortgages.