The Bank of England has just announced an interest rate increase in order to help bring down inflation back to its target. Now I have never understood this , how can having to spend more on your mortgage and firms paying more to expand their business bring down inflation ? Costs of borrowing for firms go up , surely this fuels inflation. I am missing something? Can anyone explain simply to me?
No, I can’t. Its always seemed like a blunt instrument to me too and probably much less effective these days as there are far more fixed rate mortgages around that won’t be affected.
It is designed to reduce consumption by reducing demand for borrowing and increasing saving so people spend less on products. Reduced demand for products should reduce price increases although a change of 0.25% isn’t likely to make most people make significant changes…
that makes sense ,but if we spend less surely employment will increase as firms will cut costs. more people will require benefit payments, so will not the country ecconomic growth slow down so less wealth is created.? House prices Fall? Prices do need to come down… .In the last 2 years timber has tripled ,steel has doubled , , bricks up 50%, insulation up 45% That is only quoting the game that I am in.