In my understanding, the purpose of increasing interest rates is to dampen demand by taking money out of people’s pockets. So why don’t the government just increase taxes instead? It would have the same effect, except the money would contribute to the public purse. Using interest rates only contributes to the banker profits. What am I missing - or have I just completely nailed it?
Not sure mate, but one thing is for sure, you couldn’t make a bigger mess than this shower of **** that’s been in govt far too long
Taxation *doesn't* contribute to the public purse. It destroys the money that the government creates - and influences spending choices. That is the sole purposes of taxation and part of Thatcher's biggest lie (that the government budget is like a household budget). Someone at the Treasury asks someone at the BoE to press a few keys and the money is created, but if it creates too much money inflation spirals so it has to control it by removing the money from the system through tax. Some of that money buys goods or services, is spread around through wages - at each step the pile that is circulating is smaller due to the tax.
Taking it separately, when inflation is demand-driven, increasing interest rates leaves people with less money to spend so it forces a reduction in demand. The current inflation is *supply-drive*, so increasing interest rates leaves people with less money to spend on essentials, like food and energy. Increasing interest rates isn't the way out of this situation - it just makes it worse.
I agree with this 100%. It’s the cost of food and energy that has really shot up. Interest rates aren’t going to stop people wanting to eat and keep warm!
They won't raise saving rates, they want us to spend which is good for the economy and keeps us out of recession so aren't going to make saving look a good option.
They won’t but they will lower people’s disposable income and discourage borrowing , which will cool the economy - therefore contribute to lower inflation
Profit gouging is causing inflation not wage increases. It’s so blatantly obvious but of course our govt won’t address that and instead will concentrate on destroying the lives of normal people
To try to answer your question I think the government doesn't raise taxes because politically that would be a bad move for them and would maybe cost them the next election. They'd rather the Bank of England take the heat
Forget the banks, taxation this and that, what your saying in a nut shell is i need to help you pay for your mortgage. ive already paid for mine highs and not so many lows as far as interest rates are concerned. thats nailed it.
You're missing the elephant in the room. Average pay is rising slower than inflation so people are already tightening their belts so that raising interest rate will have little or no effect. Corporate profits, however, are booming, this is what is driving inflation. Increase taxes yes but not for ordinary people, apply windfall taxes on excessive corporate profits.
Inflation is being more than partially caused by excess corporate profits and massive shareholder pay-outs. But this is pretty much the only two things keeping the stock market, and the entire private pension industry- afloat. The solution would be to tax/regulate them both till the pips squeek, Problem is then you get a depression as people lose their savings- easy stock gains and a decade of sub-zero interest in savings accounts (designed to drive demand for the former) mean even well off working class people and middle class professionals would be deeply deeply scarred by a general market downturn, even if no banks actually 'failed'. Same with the housing market, it is a bubble of all bubbles, but if we popped it how many regular people would be f*cked? Ironically if this all comes to ****, it is the renting wage earner in a stable public sector job that actually stands to lose less (as he already has nowt, and his consumer debt is being inflated away).
Because interest rates increasing benefits the rich and disadvantages the poor. It's a Tory's wet dream
The problem with increasing interest rates to reduce inflation is that it's fairly slow-reacting. Only a certain percentage of fixed-rate mortgage holders will come to the end of their deal this year, so the effect of the rate rise will be limited in the short term. Hence the problem persists. Forecasters suggest the current level of interest rates will endure until the end of next year. Tax rises would be quicker-acting, but Sunak would face resistance from his own MP's, many of whom actually want taxes cut. Plus Sunak likes to trumpet the Conservatives as the party of lower taxes. And yet the damaged public services really require higher funding. So he is in a bind. But easier politically to blame the Bank of England monster for putting those rates up. But good news - there will be a 12 month pause before your home can be repossessed! So homeowners re-mortgaging will continue to be speared by Sunak's ideology. Brave new Global Britain!
The harsh reality is that there has been loads of money pumped into the system, and closing down the economy has caused a myriad of supply chain issues. Brexit has not helped. inflation was inevitable and if it isn’t stamped on quickly (it wasn’t) then it escalates and becomes even more controllable. It is only a recession that will control it but of course no one wants that on their watch. the speed at which the Bank of England has increased rates is ridiculous especially when it is such a blunt tool, trying to combat supply side issues with demand based policy. Totally unnecessary and they have scrambled to do it as they didn’t do it quickly enough at the start. The fed did and have it under control. Bank of Englands action or inaction has totally ****** a number of people especially those in the south with stupidly high mortgages all I know is that the country is in a complete mess.
You would have thought so but the current policies have only one inevitable result; recession. I think they will call an early General Election so they can blame Labour for it.
