With all the talk of rising inflation it’s surprising how many people are falling for the interest rates must rise to control inflation line.
First, inflation is being caused by rises in global commodity prices. It is not being caused by domestic demand.
Raising interest rates is the tool normally used to dampen demand.
If you raise interest rates at the moment you might get a slight fall in prices of imported commodities, as sterling rises. But for the average consumer the potential saving of maybe £5 a week will be more than offset by paying an extra £25 a week on their mortgage.
Second, as well as raising mortgage payments – causing already hard pressed consumers to have less money to spend – raising interest rates will make our exports more expensive. But we are told we need a manufacturing/export led recovery.
Fortunately the governor of the Bank of England understands these points. We won’t see meaningful interest rate rises for at least two years.
We may get one 0.25% rise as a nod towards the idiots shouting for interest rate rises.
I wonder why these people think raising interest rates will control inflation that has nothing to do with demand?
All raising interest rates will do is depress an economy already on the skids and move us into depression.
Which is why it will not happen.