Qhere he is again with sleepless nights, then. It goes back to the bad old days of checking a calculator, trying and failing to add up the sums; back to scraping and saving, hiding from the bank, wondering what hit us.
Even before the Bank of England pushed interest rates to 5% on Thursday, the Resolution Foundation thinktank warned that anyone coming out of a fixed-rate mortgage next year could expect their bills to rise by an average of £2,900 in one year. But that’s just an average: I recently ran into a friend whose payments tripled when he remortgaged. He and his partner count themselves lucky because they have enough income to absorb the shock, but only by maintaining the absolute necessities. Will not go out. Nothing fun anymore.
It’s sad but maybe not so much of a sob story, until you consider the painful consequences for the jobs and livelihoods of millions of people who make cuts like this. All the waiters in the restaurants that survived first the bank crash and then the pandemic, once again set tables in the hope that someone will fall, to end up clearing unused cutlery at the end of the night. All those small high-street businesses, eventually forced to throw in the towel; all the bosses nervously conclude that now is not the time to expand. And all the tenants who have received emails from their landlords, airily announcing that because their purchase mortgages will go up, so will the rent.
If the long-predicted end of cheap borrowing is near now – and it certainly is, with inflation remaining at 8.7% and interest rates likely to rise further – then for the third time in 15 This year we have fallen again. into uncertainty, entering a new economic era that threatens to leave many of us feeling poorer. It’s a terrifying prospect for the poor to begin with, obviously, but it can be a radical one even for those who have hitherto felt comfortable.
It’s sad, of course, that a cost-of-living crisis only really counts as an emergency when it hits the mortgaged middle class. When the price of the most basic foods – cheese, milk, sausages – exploded with disastrous results for low-income families, Rishi Sunak responded with no more than warm words. There hasn’t been much backbench upheaval for tenants whose housing benefit has been frozen since 2020, even as rents have exploded. But when trouble comes knocking on owner-occupied doors – well, watch the proverbial fan hit. Tory MPs are clamoring for a bailout, even though tax breaks for mortgage holders now certainly risk feeding the inflationary beast, not to mention raising an overheat property market which is now completely overdue the fall.
To put it bluntly, the pain is a part not a bug in dealing with inflation: the whole point of the hike in interest rates is, as Jeremy Hunt’s economic adviser Karen Ward said , to “create uncertainty and weakness”, forcing consumers until they spend less and making employers. withhold wages. If it doesn’t hurt, as John Major famously said when rates hit 15% in the 1980s, it won’t work. But what if it hurts everyone, and still not working? That’s the prospect now troubling Rishi Sunak, with core inflation – what’s left when food and energy prices are stripped out – still stubbornly rising in a way that suggests it’s more than a post- pandemic blip.
It probably won’t work yet because the Bank of England is initially slow to move, as the government is more informed. Or maybe it’s because so many baby boomers have already paid off their mortgages and so few under-35s will actually get one, meaning rising interest rates won’t have as much of an impact on them as they once did. Again, perhaps the reason that conventional economic medicine seems to be working in the US and Europe but not in Britain may have something to do with the sudden reduction in the workforce and increased costs of doing business that accompany Brexit. Who would have guessed that shooting yourself in the foot could actually hurt? As tempting as it may be for those left to say we told you so, however, that doesn’t help anyone who is at risk of falling into arrears.
Rachel Reeves, the shadow chancellor, is right that a taxpayer-funded bailout for homeowners is not the answer, but that doesn’t mean putting people at risk of being taken to the wolves. Instead, banks should give their customers time to adjust to an unexpected shock, allow them to extend the life of their loans or temporarily switch to interest-only deals or take payments. holidays if necessary to get them. No one should lose a roof over their head due to an unexpected disaster. (Of course, interest rates always go up as well as down; but who predicted the triple whammy of a pandemic, war in Europe and Liz Truss?)
Important as they are, small easements like these are the only ways to smooth the transition to a world that is no longer what it used to be, and to a life where security seems to be no more. reachable This is what it feels like, as a country, to be poorer. And this is what it feels like, as a prime minister, to be left carrying the can.