Welcome to the new normal of high interest rates
By David Wood | 4th August 2023
Yesterday's rise in the Bank of England's interest rate - the 14th in a row - was, of course, expected.
But, according to Ian Mean, Business West Gloucestershire director and vice chair of GFirstLEP, it appears to have signalled a new normal of high interest rates over the next few years.
"It looks to me that interest rates are not going to come down anytime soon," said Ian. "That's depressing. It's bad news for business - especially small firms.
"They desperately want stability with an end to these regular interest rate rises. That seems unlikely with inflation stubbornly at 7.9% - four times the Bank of England's target. The Bank of England's 2% inflation target might not now be reached until 2025."
Ian warned that these continually rising interest rates - now at a 15-year high - will lead to lower growth with a decrease in company investment.
"And it now looks as though our economy will flatline with a difficult period of economic stagnation.
"Added to that, we have the prospect of a General Election in a year, and that will not help economic stability with politics playing a big part."
According to Ian, the biggest immediate effect of yesterday's rate rise will be on mortgage payers and renters.
"Many people - especially young buyers - are literally living on the edge as mortgages increase with a lot of young people signing up to 35 to 40-year mortgages.
"House prices are falling and the housing market is in danger of real difficulty if not a crash.
"Renters too are going to go through a very tough time with 32% now renting - overtaking mortgage payers at 22%."
Interest rates was the hot topic for discussion among this morning's Punchline Business Breakfast Briefers.
Roger Head, entrepreneur and chairman of the board of the Pied Piper Appeal and owner of Highnam Court; Pennie McKenzie, co-owner and founder of BoHo Collective, and Sam Holliday, business development manager for the FSB.
Find out what the panel's thoughts on the interest rate rise was here:
Copyright 2023 Moose Partnership Ltd. All rights reserved. Reproduction of any content is strictly forbidden without prior permission.