Bank of England ‘unnecessarily battering’ economy with rate rises

A financial adviser has hit out at the Bank of England, claiming homeowners and business should be furious about its interest rate-raising monetary policy.

The Bank of England’s monetary policy committee increased rates from 4% to 4.25% last week, the eleventh consecutive rise, but financial adviser and mortgage broker Samuel Mather-Holgate, has described this policy as ludicrous and dangerous for the economy.

He highlighted that while the Russian invasion of Ukraine pushed up energy prices amid fears of a global shortage, a mild winter in Europe limited demand and the world has adapted – bringing prices back down.

Mather-Holgate added: ““The extra energy costs filtered through to everything from food to clothes, and inflation has remained high ever since. Inflation is the measure of prices now compared to 12 months ago, so by May we will start to see inflation fall and then fall fast. 

“However, what the Bank of England has done is batter the demand side of the economy by increasing interest rates whilst higher taxes and energy bills were, in effect, doing that job for them- restricting disposal income. 

“The whole time they have known that the effect of this policy is hugely restricted by the simple fact we all need energy. It’s a vital commodity that we can’t just do without, you cannot affect the demand with higher interest rates.”

When the summer comes, Mather-Holgate said, and we are comparing energy prices in August and September to that of prices in 2022 we won’t just see falling inflation but deflation and what is more worrying, the confidence in the economy will have had the life sucked out of it by a year of unnecessarily high interest rates. 

He added: “The hopes of a demand lead stimulation to inject some adrenaline into the high street have evaporated by short sighted economics. Homeowners and businesses have a right to be furious at the policy of the central bank and Governor Andrew Bailey needs to justify the decisions of his monetary policy committee since the invasion of Ukraine.

“It won’t be until the summer that it will become clear and obvious just how damaging these higher rates will have been and I fully expect to have a new Governor by the end of the year. 

“His resignation will come at a time the economy does fall into recession and deflation will compound this lack of growth for the foreseeable future.

Mather-Holgate predicted that home and business owners who have managed to cling on to their assets will see interest rates at half of what they are today.

It comes as Tom Bill, head of UK residential research for Knight Frank, suggested the latest rate rise won’t make much difference to the housing market.

He said: “Raising the bank rate by 25 basis points felt almost inevitable given the message the Bank of England would have sent if it had done nothing or gone further last Thursday.
“Leaving the rate unchanged would have created doubts about how much economic contagion it still expected from the collapse of Silicon Valley Bank (SVB) and the Credit Suisse bailout.”

He said a rise to 4.5% from 4% would have left the Monetary Policy Committee open to accusations of overreacting to February’s surprise jump in inflation or adding to pressures within the banking system and wider economy by tightening too quickly.

“Splitting the difference was always the safest option.”

Bill said there has been upwards, downwards, and sideways pressure on mortgage rates in recent weeks as lenders have digested the varying implications from the slump in housing sales, February’s inflation data and the mood of caution that has entered swap markets due to events in the banking sector.

He added: “The good news for buyers is that any rate movements have paled into insignificance compared to the rollercoaster ride that followed last September’s mini-Budget and the overall picture is one of stability.

“The latest move by the Bank of England is unlikely to dampen buyer demand, which is proving more resilient than expected against an improving economic backdrop. That said, we expect prices to fall by a few percent this year as more homeowners transfer to higher fixed-rate deals and supply rises from the lows of the pandemic.”

“It is the new normal for rates. For those with memories that stretch further back than 2008, it looks very much like the old normal.”