Interest rate conundrum…

We have probably forgotten how exceptional the low interest period from 2009 to 2021 was. The Bank of England chart below brings it home.

Before the 2008 financial crisis, interest rates were around 5% which was needed to control inflation at the time. You all will all remember the crazy house price surge in the previous five years. The rate was then cut to nearly zero to stimulate the damaged economy.

Now the Bank of England, along with other central banks, is rapidly pushing the rates up again, currently 3% and (my guess) probably peaking at 5%, the same as in 2006-2008. The conundrum is, if they are trying to control inflation, surely higher mortgage payments will add fuel to the fire?

The bank is acutely aware of this and point out that only one in three households in the UK have mortgages whereas everyone is affected by inflation. A bit of wealth re-distribution going on there!

For more information email Ray Baxter at ray@baxterworld.com

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