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Possibly, yes

Fifth, and more certainly, the Bank of England is going to interpret the scheme as guaranteeing long-term higher prices and so will keep increasing interest rates to try to eliminate the impact of government policy. The conflicts created by non-joined-up economic thinking will be considerable. More relevantly, the impact on households will be considerable. As I mentioned recently, a Bank of England rate increase from the current 1.75% to 4% will increase average mortgage costs by maybe £600 a month – or more than £7,000 a year.

And, of course, just imagine how high interest rates would go if the other solution was tried, just print money to pay for everything!

14 thoughts on “Possibly, yes”

  1. Subtle bit of projection there:

    If I, Murphy the Magnificent, were running the BoE, as I should be, would I talk to the government about policy? No, never, they are mere fools unable to match my peerless mind!

    Therefore, the real BoE management doesn’t discuss policy with the government.

  2. Recent and not so recent graduates will be faced with an interest rate of over 20% if independent forecasts are correct.
    Yes I know they are all diplomatised in transsexual race grievance studies, but it does seem a little unfair.
    Never in the course of human history have the old forced so much sacrifice on the young as we have seen since 2019.

  3. @BiC

    11.95% was the interest rate on my first mortgage.

    It was OK though.

    I had one of them endowment mortgages. Practically guaranteed to pay off the mortgage balance it was. Practically guaranteed.

  4. Liz Truss clearly reads Murphy’s blog and his various prescriptions for and diagnoses of the UK’s problems.

    “I am beginning to think Truss will be using QE, and very soon. If so, the argument has not been in vain.”

  5. “Never in the course of human history have the old forced so much sacrifice on the young as we have seen since 2019.”

    Except on all those occasions when the old sent the young to war.

  6. Meanwhile Telegraph Business is reporting that because Liz Truss is going to pay our energy bills, inflation will be lower so BoE won’t have to put up interest rates! This sounds like magic Murphonomics!

    “Britain’s households may be spared punishing interest rate rises by the Bank of England thanks to Liz Truss’ plans to freeze energy bills.

    Neal Shearing, group chief economist at Capital Economics, described the support package as an ‘effective but expensive sticking plaster’. … He said it would lead to inflation peaking at 11pc next month, rather than 14.5pc in January.”

  7. Prof Paz

    This sounds like magic Murphonomics!

    You can be feckin’ sure the opportunistic scrote will loudly claim ownership of the mechanism that Truss uses, in a low-rent Gordon Brown sort of way – eg in PR crap for the back of one of his future risible books,

    “The economist who policies saved the UK in the winters of 2022 and 2023”

  8. @ philip
    If inflation is 20% then the *value* of the remaining debt goes down by the amount they pay in *nominal interest* – that seems perfectly fair to me. When I had a mortgage I was paying *more* in interest than the inflationary debasement of my debt.
    Why should borrowers not repay their debts?

  9. If the government borrows billions to pay Johnny Foreigner for energy this winter, that’ll push the pound lower. That will mean even more borrowing is required for next winter, and more again the following winter. There’s no way this ends well. Energy subsidies are a fool’s errand.

    The BoE can try to fight back, but 12% interest rates will cause more harm to the economy than just letting energy prices adjust naturally.

  10. john 77
    Quite so. However, why aren’t mortgage borrowers subjected to the same rate?

    Indeed. Young men were sent to war. That’s a thing young men like to do. Conscription wasn’t introduced until 1916.
    But fair’s fair. No doubt a lot of young people were glad of the chance to bunk off school. For some, the motivated and intelligent, this might have been a good thing.

  11. “increase (of 2.25% in) average mortgage costs by maybe £600 a month”
    How does Spud work that out?
    It would mean the repayment part of the mortgage is £320,000
    Assuming the ‘average’ is at the mid-point of the repayment of the mortgage, so 320k repaid, and 320k to go, then he’s claiming the average mortgage at initial date is 640k.
    If the bank thinks or thought you are good for that, and you’ve got a deposit on the line to boot, then good for you. Spud thinks public policy should be built around you, you average mortgage dude.
    For the few not the many, more like.

  12. Our host seems to think that the BoE is going to start QT fairly soon, whats the odds it never starts and instead the money printer will be fired up again to pay for all the borrowing to subsidise energy prices? What chance will the government have of selling £100bn worth of gilts (on top of the usual £100bn+ it has to sell to finace its deficit) if the BoE is selling at the same time?

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