Thursday 2 November 2017

People struggling to make ends meet will suffer from today's UK base rate rise

The Monetary Policy Committee (MPC) of the Bank of England today voted 7-2 today to increase the UK base interest rate by 0.25% to 0.5%. What does this mean for those with problem debts in the UK? GLC's Mike Dailly believes there are a lot more losers than winners from the Bank's decision today.

"The Money Advice Service estimates there are roughly 700,000 adults with problem debts in Scotland, with 8.3 million people struggling to cope financially across the UK. Those already on a financial knife-edge are the ones who will be tipped over, and this will ultimately result in defaults for credit cards, loans, mortgages and bills - with the extra charges that come with this - as consumer borrowing costs more, and those already squeezed can't cope".

“Millions of people across the UK have had to borrow to cope with low wages over the last few years, the gig economy and exponential household prices for food and bills. A rate rise right can only tip them over the edge when they’re already seriously struggling and financially squeezed". 

"It’s fully understandable that the Bank of England wants to put a brake on inflation running at 3 per cent this year. However,  increasing the cost of borrowing won’t calm inflation. The reality is Scotland and the UK relies on imports, and you get inflation when the pound is devalued. It's down 13% since the Brexit referendum, and may get weaker still.”

"While the Bank points to a historic 42 year low unemployment rate, this belies the fact real wages have been cut, and there is much more job insecurity and unpredictable pay with zero hours contracts. The cost of living has risen exponentially in the UK for utilities and food; in Scotland private sector rents have increase by 25% on average in the last 6 years, double the rate of inflation".

"Increasing the base rate, means that millions of people already struggling to cope will have to pay more for their debt. We've had a 10% growth in consumer borrowing - now sitting at over £200bn - as people borrow at low rates to make up shortfalls from the real economy.  It's fair to say, millions of people across the UK are now being hit twice; their incomes are cut due to the weak pound, and now their borrowings cost more because of the Bank's interest rate rise". 

"In reality, the economic circumstances which led to the Bank to cut interest rates to 0.25 last August haven't changed and there is no cogent monetary or economic basis for today's hike".

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