Bank of England independence was no one’s first choice. Margaret Thatcher never did it, John Major preferred to devolve power to the German Bundesbank than grant it to Threadneedle Street. Because the power to set interest rates is an awesome one.
Higher interest rates are not some esoteric phenomenon, insulated from the real economy. They feed into virtually every aspect of our lives. For individuals, they mean higher mortgage payments, car payments, credit card payments. For businesses, they drive less investment, fewer new jobs, foregone wealth creation.
And today, the mighty David Bond can put some meat on the bones. As he reports, thousands of Londoners have been warned they face paying up to an extra £10,000 a year as a result of higher interest rates. Of course, this comes on top of higher everything, from food to fuel.
New data compiled by mortgage broking firm L&C suggests that if mortgage rates jump from 1,5 per cent to five per cent, then an average London homeowner with a £350,000 mortgage could be facing a rise in payments of £647 a month — or £7,764 a year. At six per cent the jump is £856 per month — or £10,272 a year.
For those who cannot afford these increases, it may mean selling their home. For others, it will force them to cut back on what was left of their discretionary spending at a time when the economy is fighting with every last breath to avoid recession.
And it may happen relatively soon. Of the 2.1 million mortgage holders in the capital and the South-East, more than one in four are estimated to have a fixed-rate mortgage which will expire in 24 months or less.
Interest rates were always going to rise, mini-budget or not, to fight inflation. But the £45bn tax-cutting budget last Friday (was it really only a week ago?), by causing substantial market turmoil, has accelerated the rises and means they will likely go higher still.
I perhaps went a little overboard on my defence of Treasury orthodoxy yesterday. But ‘first, do no harm’ is not a bad motto for any fiscal event. By sacking Tom Scholar, rejecting OBR forecasts and appearing uninterested in Britain’s debt, our new prime minister and her chancellor failed in that regard.
The political cost already appears substantial. Renters may not feature so much in the Conservative voting coalition (such as it is after *that* YouGov poll.) But homeowners in the South-East?
In the comment pages, Emily Sheffield says voters are unlikely to forget Liz Truss’s gamble with Britain’s economy. While Paul Flynn mounts a defence of London’s Wetherspoons, “the only place Northerners don’t comment on the price of a pint.”
And finally, our pick of the best Edinburgh Fringe comedy shows coming to the capital this autumn.
Have a lovely weekend.
