The Bank of England has raised interest rates by a quarter of a percentage point from 0.25 to 5 percent.
The Bank’s decision to raise its base rate for the first time in a decade affects nearly all other interest rates. It will push up the cost of all forms of borrowing.
Debt charity StepChange warned, “Millions of households are on a knife edge. The increase in mortgages that result from a rate rise may seem small, but it may be enough to push some from just about managing into financial hardship.”
The decision will add around £21 a month to the average £150,000 mortgage. Around a third of mortgage payers are on variable rates that could go up just before Christmas.
Landlords who are paying mortgages on the properties they own will pass on the rise to their tenants through a rent increase. And some landlords without mortgages will just see a chance to make even more money.
Frances O’Grady, TUC union federation general secretary, was right to say, “This is the last thing hard-pressed families need.
“With living standards falling, the economy needs boosting not reining in.
“Today’s hike is a hammer blow for those in problem debt, whose repayments will now rise. The Bank of England has made the wrong call – but the government must not hide behind it.
“Working people are paying the price for ministers’ failure to get wages rising. And for their failure to invest in jobs and services when interest rates were so low.”
The rate rise comes a day after the Institute for Fiscal Studies (IFS) predicted that the number of children living in poverty will soar to a record 5.2 million over the next five years.
By 2021-22, the IFS expects 37 percent of children to be living in relative poverty after housing costs have been taken into account. This is the highest percentage since modern records began in 1961.
The official reason for the rate rise is that inflation is higher than the government target of 2 percent. But that’s not because of reckless consumption by ordinary people.
Many workers face stagnant or even declining wages in “real terms”—adjusted for inflation.
Ordinary people will now have even less money to meet their bills because of the workings of a financial system which serves big business.
The rate rise is one more reason to step up the fight for above-inflation pay rises and to bust the benefit freeze. Labour leaders should call for that, and also say they would take away the Bank of England right to decide interest rates independently of any democratic control.
Tony Blair handed the Bank that right in 1997 as a sop to the corporations and rich. The Bank should lose it