tjh290633 wrote:Mike4 wrote:
This all rhymes with my own thoughts. Also, having had a base rate rise every month for a year now it seems to me that
A) they are having no effect, and
B) It's time to stop the rises and have a re-think as they really biting hard now into people's finances and no-one can explain the mechanism by which the rate rises are supposed to be reducing fuel-cost-driven inflation.
What you have to remember is that the Bank of England has raised rates too little and too late. Compare them with the Fed.
Traditionally rates rose in 0.5% steps and fell in 0.25% steps. Don't forget that interest rates also affect exchange rates, so being behind the curve makes things worse from that aspect.
TJH
Go back to when gold (Sovereign Pound coins) were money. Being finite inflation broadly averaged 0%. Then in September 1931 Parliament Acted that deposited gold would be paid out as Pound notes, money was no longer gold, but paper money instead, that could be printed/spent and in so doing devalues all other notes in circulation. Predominate inflation was born. Previously the Crown/State had to pay real rates of return on deposited (borrowed) gold, but thereafter its cost to borrow dropped to zero (taxation/inflation), and where it had no real need to borrow when it could just print/spend instead. However by continuing to borrow (issue Gilts) then anyone holding (lending) at fixed rates, say 4%, would be hit if base rates/inflation rose to 5% (-1% real 'return' (loss)). Which deflates the debt. In effect those with money paying the state in order to lend their money to the state.
Higher rates also potentially promote investment. When interest rates were near 0% I was content to hold hard cash rather than lend it (deposit it in)to banks where once deposited it becomes the banks money, maybe returned, maybe not (but where protection regulations meant the first £85K was 'insured' to be returned). When there's inflation those with surplus capital are more inclined to invest it in order to try and offset otherwise loss of purchase power.
Raising rates also can have the effect of attracting money into the country. If the Brits are paying 4%, Germany are paying 2%, then all else being equal and investors may move money from Germany to Britain for the higher return that provides. However that goes hand-in-hand with perceived risk/value, will only be attractive if the governance and economy look safe/sound. In the UK's case under Sunak's Chancellorship and now PM Britain is a joke, money is out-flowing at a high/fast rate and the appeal for others to invest in the UK rather than elsewhere is low.
1952 and British inflation was over 9%, basic rate taxation was increased to 47.5%, savers had to earn over 17% gross in order for those savings to have maintained purchase power. Many obviously wouldn't have and as such have lost some of their wealth. 1975 and inflation rose to 25%, taxation increased to 35%, savers would have had to earn a 38.5% gross return in order to offset inflation in net terms. It only takes a couple/few years of such policy to wipe out a lot of individuals wealth.
Inward investors like such situations, where the citizens in real terms are in effect prepared to continue working/saving, for much less. LT/KK intent was to stem the outflow of money, keep the 1% that pay a third of the tax take, if not see that number double. Potential inward investment/money didn't like that so ejected them in favour of Sunak's managed/accelerated UK decline alternative.
Sunak has pledged to halve inflation, down to still being near 300% of target inflation, promised at a time when inflation was believed to have peaked (in double digit figures). He's also promised to grow the economy, which is easily achieved via opening up large-scale migration, further aided by 'cheap' workers (bordering on slave levels of cost/pay). He promised to reduce the national debt, i.e. not continue to repeatedly spend three digit billions amounts on wasteful things such as Fulough. He also promised to cut NHS waiting lists, and then came out with the stupid idea that GP's should be taken straight out of school-leavers instead of going through their normal many years of training. He also promised to pass legislation against small boats entering the UK, which as a sovereign country that should be defending its borders anyway is just indicative of a intent to throw money at border controls.
A problem is that come the next GE those that vote for the MP they'd most like big-money to control for five years, only have the option to vote for a back-stabbing closet socialist, or a actual socialist. Good news for big money, a sustained bad outlook for the population in general.