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Monetary squeeze continues as BoE raises base rates to 5%

Graham Watson

23rd June 2023

The Bank of England has raised base interest rates by 0.5% to 5%, the highest for fifteen years. The move has been trailed as a pre-emptive move meaning that the Bank hope that such a step will reduce the need for keeping rates higher for longer.

None of which will be a comfort to mortgage borrowers: mortgage interest rates were as low as 3% in June last year - however, currently a two-year fixed rate deal is 6.19% and a five-year deal is 5.82%.

It is a deflationary move - designed to choke off demand in the economy and in doing so, get inflation back under control.

Please read: Interest rates: Bank of England boss denies wanting recession as rates rise (BBC news)

This Guardian piece looks at today's interest rate rise and the accompanying mood music, noting that the Bank of England rather seems to have lost control of the inflationary environment.

Please read: Bank of England faces flak as economic history fails to repeat itself (The Guardian)

Here is a fascinating insight into the nature of the housing market and the implications of this for people on variable mortgages - in short, prior to the next election, a lot of people are going to start paying a whole lot more for their mortgages and it will be interesting to see how this affects both the economic and the political environment.

Please read: UK mortgage rates rollercoaster is the price to pay for cheap, short-term deals (The Guardian)

Rising food prices have had an interesting effect on shopping and cooking habits: not only have discounters seen their market share rise, but people have started buying fewer fresh foods and more microwaveable ready meals.

However, the economics doesn't stop there - apart from considering the obvious application of YED - might it be the case that processed microwave meals contain more additives and are also demerit goods? If so, what are the consequences for public health and for inequality.

You see - Economics really is the gift that keeps giving.

Please read: People turn to microwave meals as prices soar

In other news, the latest snapshot of public finances has thrown up this interesting headline - that government debt has exceeded 100% of national income for the first time since 1961.

But what does this mean? In the short-term, relatively little. It's almost a 'so what?' moment - however, in the longer-term it has implications for government spending, particularly if the rate at which the government can borrow increases, and this has implications for macroeconomic objectives more widely.

Please read: UK government debt rises above 100% of GDP for first time since 1961 (The Guardian)

Here are some links to coverage and comment on the jump in UK base interest rates to 5%.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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