Interest rate rise: It’s going to get worse before it gets better

By Dominic Bourquin, MHA Monahans

Was this interest rate rise a complete shock? No. Given that inflation by any measure is already high and rising and with the Consumer Price Index (CPI) expected to hit 7 per cent by the end of the year, this move by the Government was certainly coming. 

However, just because this change was on the horizon doesn’t mean this sour pill will be any easier for already stretched householders to swallow.  

The dark clouds looming over the country such as energy price increases, rising fuel and food costs and the threat of war in Ukraine, mean that these pressures are unlikely to ease in the short-term. With tax rises coming in April, many will feel financially squeezed from all directions.

Additionally, the markets appear to have pencilled in base rates of 1.5 per cent by the end of the year, so mortgage costs will continue to increase at a time when households can least afford it.

Will the Chancellor’s other schemes help ease the burden?

Mr Sunak recently announced limited Council Tax assistance for the most disadvantaged households, and a one-off payment by energy providers to all consumers does provide some small respite. However, the one-off energy provider payments will be added to consumers bills in later years, so this is a cashflow advantage only.

Nevertheless, commentators think the Chancellor has some wriggle room either to postpone or cancel completely the 1.25 per cent increase to National insurance coming in April to fund social care. While a relief on household purse strings, this move will likely put unmanageable strain on the social care system. 

What’s the bottom line?

It is a perfect storm of rising prices, rising inflation, and rising taxes. The question many are posing is: can the Government really afford to help anyone after borrowing hundreds of billions to combat Covid? Some might go so far as to say that given the current difficult political landscape, the Government cannot afford not to intervene further to help households weather the worst effects of this storm.

One thing is for sure, it is going to get worse before it gets better. 

By Dominic Bourquin, MHA Monahans

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