Interest Rates Rise: Pain Peaks till ’27

If you are a small business or entrepreneur – this interest rate pain is likely to drag on for years making your borrowing more expensive every year. 

Years of interest rate pain lie ahead; maybe until 2027, according to the Bank for International Settlements.  

The fight against inflation appears to be waning. The inflation rate is stubbornly high, 8.7%, in May, despite 13 interest rate hikes in a row raising it to 5%. There is talk of 6% by the end of the year. The Bank of England’s target for inflation is 2%.

What went wrong with the UK interest rates?

So, what is going wrong? All the indications are that government COVID hand-outs and desperate money printing have left too much cash chasing too few goods. Interest rate rises  

On top of this, a shortage of labour, partly due to BREXIT, gives workers more power to demand pay rises to keep up with inflation. 

The well-intentioned handout of taxpayers’ money to people in the wake of COVID is now being seen as too much, too often. It also required huge borrowing by the government, an amount never before seen outside of wartime. 

“With the benefit of hindsight, it is now clear that the fiscal and monetary policy support was too large, too broad-based and too long-lasting,” says the Bank for International Settlements in a statement seen as critical of the Treasury.

Using money like sugar

The second big problem has been printing money and pumping it into the system by buying bonds.

Whatever way you look at it this printing of money is a short-term boost for and economy in the way that sugar is a boost for the body’s metabolism.

It carries the innocent-sounding name of “quantitative easing” but the only easing it does is to ease down the value of the pound in your pocket. 

The folly of printing money

One of the supreme ironies is for years the rich economies of the northern hemisphere lectured the emerging economies of South America and Africa about the folly of printing money. Now everyone, including the United States, is doing the same.  

All of this adds up to tough times for entrepreneurs on the ground who often have as much more wisdom than politicians.  

I spoke with a couple of them on Sunday morning, a phone shop owner and proprietor of private taxi cabs. 

Both were angry about the hundreds of pounds more that they faced paying on their loans, every month, because of the string of interest rate rises. 

What this country needs is a strong leader

“They gave out too much money during COVID and now the banks are trying to get it back from us,” said the phone shop owner.

“The government has failed to deliver the growth it has promised. Rising interest rates is merely a knee-jerk reaction to this failure,” says the taxi man.

“The Tory party is a mess and all over the place when it comes to policy. What this country needs is a strong leader, with strong policy, to tackle the economy.”

Yes, we do, like a bath needs a plug. The billion-dollar question this morning – who? 

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