Interest rates v inflation

Putting up interest rates harms the population as a whole by pushing up mortgage rates and loans for big ticket items such as cars so the theory is that this dampens down demand and these items become cheaper. Only both houses and cars are in such short supply that this does seem like it won't have the desired effect.

It does also mean that we have less disposable income so spend less on leisure activities and buying lots of pointless stuff which also should see those items become cheaper. But the price of a pint in a pub heading towards £7 is not because the pubs have decided that they weren't making enough profit and are now coining it in so again I struggle to see how this will work at present.

I do think that the average man on the street will feel the pinch from this and probably sees the Bank of England as being a right bunch of cunts for kicking us when we're down and probably feels that if they wanted to help the country surely they would reduce interest rates not push them even higher.

There are some who might argue that this is no bad thing. Better to be in recession so we are nearer the other side of it than be sat waiting for a looming recession. Not sure if that stands up to logic or not given that this could be our worst recession in a very long time.

We have our mortgage due in 11 months time. I realise I should have acted 6 months ago but having missed the boat should I act now. Pay the fee for settling early and paying the over inflated rates currently on offer or take my chances on the rates not being so over inflated in 11months time as recession kicks in? Coming off a 1.79% rate I really am pooping it.

Cheers Bob, its kind of where I see it but its a risky strategy. Running cost comparisons before yesterday looked pretty bleak. Think I'll have to put my blinkers on until next year and hope for the best. 

Things are so unpredictable it's impossible to say what is the best way way forward, but in your position I would be putting the blinkers on and worrying about it next year too. 

We were looking at 3/5/10 year fixes in March 2021 and the rate back then felt a bit too good to be true, so I signed up for 10 years at 1.89% (14 yr term).  At that rate I won't do anything to pay it off early, but will review that decision again in a few years time.   

I suppose the only way to rationalise it from the Bank of England's point of view is that their mandate is to control inflation and they have been given a target to keep it below 2% (ha ha). They only have a limited amount of levers to pull in order to attempt to do this.

The main one is interest rates, so they have to raise them in an attempt to reduce consumer demand and provide a better incentive to save.
The Bank cannot really control monetary policy any more, quantitative easing/printing money and low interest rates have driven up spending and inflated the prices of certain assets.

Given that I currently have more savings than interest-bearing debt I am 'happy' for interest rates to rise in order to provide a little more stability in the equity markets.

I was under the impression that a big part of the problem is that the US has been quicker to raise interest rates than the UK and Europe, strengthening the dollar at the expense of the pound and euro, making global commodities traded in dollars more expensive for us, fuelling inflation. I believe US rates are still a full percentage point above ours.

It also doesn’t help that we’ve tethered ourselves to unreliable and therefore incredibly expensive forms of energy in renewables so we’re handicapped when it comes to competition on the global stage. Factor in the NIMBYism that strangles house building in this country, that in turn causes property to be far more expensive than it should be, and you end up with less disposable income in the first place.
Liz Truss was right in so much as unpopular decisions need to be made if we’re to avoid further decline.

Who is Liz Truss??

We’ve been using cheap gas as part of the transaction to net zero. Generating electricity via gas produces half the CO2 compared to coal. Despite more devices we’re using less electricity now as they use far less power than in previous years. 

This.

Mankind has to face the fact that we are totally irrelevant to the Earth we inhabit and the natural universe as a whole. Just like the dinosaurs when nature is fed up with us it will find a way to fuck us off for good - giant meteor strike; plunging towards the sun in a gravitational change; sunk under the seas; loss of potable water or simply self immolation of some kind. There are so many ways mankind has the possibility to end its time concentrating on delaying one is utter folly. Until we recognise the real issue and prevent idiots like me having 5 more CO2 producers and allow the old and infirm to be euthanised all the changes being made and planned are just like pissing into the wind.

I absolutely believe the scientists that are raising the issues with global warming. I’m also acutely aware I also believed the scientists in the 80s that were concerned with global cooling and that we were heading for a new ice age.

There are four reasons why interest rates are rising.
(1) the US are raising rates and the USD is rising against all other currencies. So USD denominated stuff - oil, gas, commodities, wheat futures etc etc - all cost more in £ driving inflation. The US raised rates faster than us or the European central Bank, so we're playing catch up.
(2) the bank is using what they like to call "demand management" (aka a recession) by raising borrowing rates to kill off domestic demand and hence (they hope) inflation (or so the text books will have convinced them).
(3) as they can't unwind QE, interest rates are about the only tool they have. And so to be seen to "do something" they raise rates.
(4) QE has hugely inflated the money supply since 2008. Eventually that has to be unwound or dealt with in some way. They can't unwind QE (as that part of the theory of QE has never really been tried and like most theories does not stand a meeting with the real word). So instead they raise rates.

Currently there are numerous massive issues with whatever course of action that might be followed. 
(1) All logic says that going into a recession (caused by higher energy prices), rates should actually be falling. But of course they were already at rock bottom, had been there too long and that's basically utterly fucked the logic of money supply and demand. So we have rates rising into a recession. 
(2) The can that was kicked down the road in 2008 is now starting to fall apart from all the continued kicking. Too many central banks (and politicians) thought that they has suspended the laws of  economics in 2008 (I give you one "G Brown" who claimed to have "saved the world economy"). Nope. We're here in the process of having the laws of economics re-explained to us. The era of cheap money is probably over. Capitalism (with targeted support for individuals not corporations) should have been allowed to take its course in 2008. 
(3) Independent central banks were an idea for good times. In tough times they simply don't work. All the levers of control - interest rates, taxation, spending, borrowing - need to be managed in consort. 
(4) Finally a piece in today's paper pointed out that all the oh so clever central bankers may have actually shot themselves carefully in the head with QE and interest rate rises. In QE (theory), to maintain liquidity in a crisis, central banks bought (or swapped) government bonds that commercial banks held for cash balances with the central bank. This allowed the banks to lend more, so helping the economy. So in its books the central bank has a government bond (fixed interest) that it should receive income from the government for. As interest rates rise, then bond values fall to compensate so that the yield remains competitive. Therefore the bonds that the central bank hold have fallen in value and so the central bank, by raising interest rates, is reducing the assets its holds and is therefore capable of making itself technically insolvent. QE has been the biggest con trick ad disaster in the making ever. Well, up there with Target 2 balances in the Euro area.  

Japan has been able to run with negative rates for ages as there are two key differences. 90% of Japanese government bonds are owned by either the BoJ or Japanese people and Japan runs a current account surplus so does not need foreign investment to survive. The UK runs a current account trade deficit so that can be funded in two ways - the currency depreciates and / or overseas people buying UK government bonds ("gilts"). Raising interest rates is the way used to defend the currency and encourage overseas buyers to hold gilts. 

Which means that to keep the UK solvent, we need higher rates. But to have higher rates, we have to suffer a recession. Great choice. 

Italy used to be a good example of your  "Let’s have that and fuck the inflation" approach. It sort of worked for them - in benign economic times (which kept inflation lower) and so long as you accepted the enormous north-south wealth divide in the country. The Lira steadily depreciated against all other currencies as the country lived beyond its means. Until they joined the Euro and having a fixed exchange rate has basically knackered them completely.      

And in fact the UK - despite the fact we don't like to admit it - has followed the same path as Italy but to a lesser degree. In 1900 the exchange rate was £1 = $5. During the American Civil War it was briefly at $10. But 100 years of spending more than we earn - including of course fighting two world wars - has left us where we are today at $1.12.