BOE Interest Rate increased to 3%

uk1

The government has decided to give advance notice of a windfall tax rather than take the bold step of backdating it to accommodate the current and historical obscene profiteering.  

Anyway.  

So it will use the taxes collected from the windfall tax if - given the lengthy advance notice they have been given - the power companies don’t divert the profits to elsewhere.  And so the cunning plan is the government will increase my taxes and your taxes and the windfall taxes to give it back to me so that I am then obligated to give it back to the utilities so that they can send it offshore. But delinking the bizarre dependency on electricity prices on wholesale gas prices is not something I have seen suggested.  

It feels like Alice in Wonderland. 

Cus

uk1 said:

If the idea of increasing lending rates is to dampen demand on discretionary spending to retard inflation, then I am bewildered how this action works when the bulk of price rises effecting increases in expenditure is currently non-discretionary spending, ie heating, housing and food.  Almost all of the inflationary components are non-discretionary.  

In fact the obligation to spend more and more of fixed income on these essentials has already deflated discretionary spending and that reduction in loss of available discretionary spending will dig even deeper and hurt the wider economy likely accelerating recession.  So if the aim of increasing lending rates is to cause a more rapid recession then it is a great strategy. 

It is a weirdness that I have not yet heard questioned vigorously or heard explained or justified.  Or pehaps I simply do not understand things I thought I understood.

There is domestically generated inflation, with wages, and energy demands that are not just household but can be reduced with a recession. I believe they are targeting the inflationary components that they can influence. Also raising rates makes investment into the UK more attractive, so ensuring that our currency doesn't crash and things cost even more to import. It also helps them dump bonds during quantitative tightening by inflating away the value.

phillw

uk1 said:

then I am bewildered how this action works when the bulk of price rises effecting increases in expenditure is currently non-discretionary spending, ie heating, housing and food.  Almost all of the inflationary components are non-discretionary.

You don't have to have your heating on, I haven't yet.
You can cut back on what food you buy (either quantity or quality).

I'll give you housing, it's kinda hard to cut back on that.

Millyonare

UK inflation in 2021-2022 is obviously a global Covid-led supply shock. Covid shut factories and fields and reduced supply of fuels, goods, services and labour in every country on Earth. That should work its way out of the system in 2023, as YoY comparisons normalise, and inflation should statistically ease next year -- with or without rate rises.

Dyor, etc.

DoublePolaroid

phillw said:

uk1 said:

then I am bewildered how this action works when the bulk of price rises effecting increases in expenditure is currently non-discretionary spending, ie heating, housing and food.  Almost all of the inflationary components are non-discretionary.

You don't have to have your heating on, I haven't yet.
You can cut back on what food you buy (either quantity or quality).

I'll give you housing, it's kinda hard to cut back on that.

Being elderly, having one of various medical conditions and taking certain drugs impairs thermoregulation to the point where the kind of temperature that a healthy person might shrug off by wearing several layers and a blanket can threaten the health or life of somebody susceptible.

Cold, dry air also renders the mucous membranes of the respiratory tract less effective as a barrier against pathogens and increases the risk of contracting Covid/'flu/other respiratory tract infections; again not a huge problem if you're young and healthy but a bit of a bummer if you aren't.

Some people really do need the heating on, and fuel poverty is absolutely going to kill a lot of people this Winter, though working out quite how many when it's mixed in with the numbers being killed off due to being unable to access timely healthcare and those being killed off by seasonal 'flu/covid is a challenge for people cleverer than me.

Linton

Millyonare said:

UK inflation in 2021-2022 is obviously a global Covid-led supply shock. Covid shut factories and fields and reduced supply of fuels, goods, services and labour in every country on Earth. That should work its way out of the system in 2023, as YoY comparisons normalise, and inflation should statistically ease next year -- with or without rate rises.

Dyor, etc.

Unless everybody gets an inflation matching pay increase which will raise prices further next year and inflation will continue. Our other problem is a skilled labour shortage which could also increase wages. Hence the BoE increasing interest rates.

So I wouldn’t be that confident about next year yet.

littlemissbossy

I know this is off-topic, sorry, I didn't want to start another thread.

Given what the government are telling us about the black hole we now have in the public finances, was this hole not there before the Truss/Kwarteng budget?

Was this problem here before and the budget farce just showed it up or was it because the budget caused the government borrowing rates to increase, which then increased the black hole due to the debt repayments?

Sorry if this is a stupid question, I just wanted to understand it a bit better.

EssexHebridean

phillw said:

uk1 said:

then I am bewildered how this action works when the bulk of price rises effecting increases in expenditure is currently non-discretionary spending, ie heating, housing and food.  Almost all of the inflationary components are non-discretionary.

You don't have to have your heating on, I haven't yet.
You can cut back on what food you buy (either quantity or quality).

I'll give you housing, it's kinda hard to cut back on that.

Is this a deliberate “posting for controversy” thing? Or do you just spend all your time in this little banking board bubble so you’re completely unaware of the many people on these boards - who strangely enough reflect those in the real world out there too - who perhaps DO have to have their heating on - because they have health issues that demand it, or because perhaps they live in a poorly insulated home in a part of the U.K. that tends towards the conditions being less clement that hey are wherever you are based? Similarly, the many people who have already cut their food ur chasing back as much as they can - in some cases both quality AND quantity. 

Millyonare

Linton said:

Millyonare said:

UK inflation in 2021-2022 is obviously a global Covid-led supply shock. Covid shut factories and fields and reduced supply of fuels, goods, services and labour in every country on Earth. That should work its way out of the system in 2023, as YoY comparisons normalise, and inflation should statistically ease next year -- with or without rate rises.

Dyor, etc.

Unless everybody gets an inflation matching pay increase which will raise prices further next year and inflation will continue. Our other problem is a skilled labour shortage which could also increase wages. Hence the BoE increasing interest rates.

So I wouldn’t be that confident about next year yet.

Don't think there's ever been a wage-led inflation spiral in recent history. Wages are growing at 4-6% YoY, which is high, but not crazy. And Britain has had a skilled-labour shortage for the past 125 years or more, it's nothing new. The Americans had to teach us to build airplanes in WW1, for example. Not to mention the upcoming tax crush and leaping mortgage rates, which will suck further money and joy from the economy in 2023.

Millyonare

littlemissbossy said:

I know this is off-topic, sorry, I didn't want to start another thread.

Given what the government are telling us about the black hole we now have in the public finances, was this hole not there before the Truss/Kwarteng budget?

Was this problem here before and the budget farce just showed it up or was it because the budget caused the government borrowing rates to increase, which then increased the black hole due to the debt repayments?

Sorry if this is a stupid question, I just wanted to understand it a bit better.

The "black hole" is a bit of a myth. The UK has one of the lowest levels of state debt in the entire G7 worldwide. The UK could easily plug any funding gaps (perceived or real) without a further tax squeeze on its citizens.