Those that apparently know these things tell us that interest rates will go up next week. This should be worrying, not simply in and of itself but because of what it says about how out of touch with reality so many elements influencing and running our economy really are. First, the consumer economy is far more fragile than seems to be believed. Recent months have seen many case of ONS data being wrong across the economy. I have been warning about dodgy retail sales data from the ONS for far longer. These data paint a picture of buoyant spending which I have yet to see reflected in either results or anecdotal evidence from leading companies.
Only theoreticians could think “…one quarter of a percentage point wont make any impact on household budgets”. The public react on an emotional, not a statistical, level. Many consumers with debt today only know rock bottom interest rates and their already fragile confidence will certainly be impacted. They may be able to trade down to avoid inflation in shops but doing this with their debt is another matter.
Interest rates are usually increased when economies are overheating, when demand is rising and helping to increase inflation. Our economy is slowing. The worst of inflation will be falling out of the equation in the coming months. Real incomes remain weak, hence so too is demand. Hitting already wafer thin confidence with a message of further squeezes on household budgets is guaranteed to adversely impact retail sales.
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