More pain for entrepreneurs: interest rates up to 5.25% – a 15 year high.

 

 

 

The cost of borrowing money has gone up yet again to a 15-year high meaning more pain for entrepreneurs in a struggling UK economy .

The Bank of England put the interest rate up from 5%  to 5.25%,  at Noon on August 3. It is the  latest attempt to bring down one of the highest inflation rates among the world’s major economies.

Maybe 6% by the end of the year. 

This is the 14th interest rate hike in-a-row and there are fears that they will go even higher, towards 6%, by the end of the year. 

Interest rate increases have accelerated following the Russian invasion of Ukraine and the subsequent rises in energy and grain prices. They are a world away from December 2021 when interest rates were a mere 0.1 %.

Get used to it – Bank of England

The good news is the Bank of England forecasts say the UK is likely to avoid recession. It also  warns that the economy flatlined for the last three years with near zero growth. The Bank also signals that rates are likely to stay high for a long time; long enough to bring down inflation.

Economist Justin Urquhart-Stewart disagrees with the Bank of England forecast. 

“This is not about a consumer boom!”

“Look at the economy, we are actually seeing the warning lights now, we are heading for recession..The effect of rate rises can take a year, two years, what you are going to be doing now is overcooking it,” he says.

 

“Don’t put interest rates up now!”Justin Urquhart-Stewart.

“This inflation is not about a consumer boom. It is about external factors, it is about the price of wheat, the price of fuel and supply chain issues from COVID. Don’t put interest rates up now, what you need to do is avoid recession. What you need to do is provide tax incentives to create that lovely word that is vital to running the economy, that is : confidence.” 

“The rich win.”

People took to the airwaves and social media to criticise the decision.It  is likely to hit 40 year olds with debt the hardest and benefit 70 year olds with investments the most. 

Prem Sikka, an emeritus professor of accounting and member of the House of Lords, believes that the move will merely push up rents, mortgages and grocery prices.

“Wrong policy.”

“People and government will be forced to hand money to banks, boosting their profits, dividends and executive pay –  a huge transfer of wealth. The rich win,” he said on X.   

“Wrong policy. Need to tax those with surplus cash” 

On the political front Prime Minister Rishi Sunak defended the interest rate rise saying the alternative would make inflation far worse .

“Leaving working people worse off.” 

The shadow chancellor Rachel Reeves said on X  the interest rate rise would be very worrying for households.

“Responsibility for this crisis lies with the Tories. They’ve crashed our  economy leaving working people worse off.” 

  

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AUTHOR 

Picture of Chris Bishop

Chris Bishop

Chris Bishop is an award-winning journalist who has been a war correspondent, founding editor of Forbes Magazine, television reporter, presenter, documentary maker and author of two books published by Penguin. Chris has a proven track record of spotting and mentoring talent. He has a keen news sense and strong broadcasting credentials, with impeccable contacts across Africa - where he has worked for 27 years. His latest book, published in February 2023, follows the success of the best-selling “Africa’s Billionaires.”

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