On Thursday, the Bank of England is expected to hike interest rates for the 12th time in a row, from 4.25 percent to 4.50 percent.
That will lift bank rate to its highest level since October 2008 and increase the pressure on cash-strapped households, particularly mortgage borrowers.
I’m confused over why it’s so desperate to hike rates again, given that the Office for Budget Responsibility has assured us that inflation is set to plunge and will hit 2.9 percent by the end of the year.
The BoE’s inflation forecasts are equally optimistic. It reckons “inflation might now have turned a corner” and will “begin to fall quite sharply from the middle of this year” as wholesale energy prices and imported goods fall in price.
So what’s it trying to hide?
The answer is that governor Andrew Bailey has lost all control of inflation, which was stubbornly high at 10.4 percent in February and 10.1 percent in March.
This has clearly rattled the BoE, which no longer trusts its own forecasts and is desperately trying to deflect the blame for a string of policy errors.
We all all suffer as a result.
Hiking interest rates will cut inflation by making millions feel poorer. Incredibly, that’s now official BoE policy because, in its own words, “as people have less money to spend, we expect there to be less demand for goods and services”.
British families just have to “accept that they’re worse off” and stop pushing for a pay rise, according to the BoE’s chief economist Huw Pill.
In other words, inflation is our fault, despite scant evidence of a wage-price spiral.
Third, as people have less money to spend, we expect there to be less demand for goods and services in the UK.
Pensioners have some protection due to this year’s 10.1 percent triple lock increase, which came through in April.
But that won’t make up for last year’s move to suspend the triple lock and give 12 million retirees a rise of just 3.1 percent just as inflation took off.
In another blow, food prices continue to rocket and even though prices are falling this will take a long time to feed through to the supermarkets.
It’s an ill wind that blows nobody any good, and at least savings rates have started to rise again.
It’s now possible to get a best buy five-year fixed-rate bond paying five percent a year. That’s still well below inflation but somebody who locks into that rate today could see the value of their deposit start to grow in real terms in a year or two.
Assuming inflation does fall, that is.
As interest rates rise, most things will head south. Primarily, our sense of financial well-being and national self-respect. House prices could finally crash.
The stock market will continue to flounder, making pension and Isa savers feel poorer. Prime Minister Rishi Sunak’s poll ratings will sink further.
And the BoE’s response? It’s not our fault so stop moaning about being worse off.
Bank policymakers have been in denial about inflation again and again and again. Ordinary Britons are paying the price, and like interest rates, it’s rising all the time.
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