Last week, interest rates in the United Kingdom rose to 5%, their highest level since 2008.
That move is the Bank of England’s response to the inflation rate of 8.7% not budging an inch from the previous month. The bank has now moved the needle up 13 times in the last year or two.
This hinders hotel development and refurbishment and further limits guests’ discernible income.
Last Thursday, Whitbread PLC hinted in its first-quarter results that inflationary pressures have helped its bottom line as guests have moved down the segment chain when it comes to their hotel choices.
The Bank of England’s governor Andrew Bailey said on the latest increase that “the rate at which prices are rising … will fall markedly this year,” but added “there are signs of it being persistent,” according to the BBC.
Newspapers and TV broadcasts here have concentrated on what this means to mortgage holders, at least for those who do not have fixed interest rates on them.
Some economists are openly saying the country should be plunged into a recession for a few months to halt inflation, or crush any stubborn, belligerent requests from union members to try and increase their families’ standards of living.
A June 22 news release from audit and tax consultancy RSM UK said that in its latest survey, it found that 57% “of those in work had been given a pay rise this year, with the vast majority (44%) receiving a 2% to 7% pay boost and 11% receiving a pay rise of less than 2%. Twenty-two percent of respondents were expecting a pay rise in 2023 who have not yet had one, but just over a fifth (22%) were either not confident or not sure if they would receive one.”
All 100% received pay increases less than the rate of inflation over at least the last six months.
The argument will be that if we are all careful and respectful for a few more months, inflation will be tempered and thus we will all be better off.
With a goal of not being political, I will add some points that I think need to be considered and debated, not merely ignored, or, more annoyingly, calculatedly sidestepped:
- The idea that wages cannot be increased to the level at or above inflation — and considering many saw real income dented during the pandemic — because that would merely just serve to further increase inflation might be a Catch 22 or not. Is economics that logical, or are there other solutions to fix the problems?
- Might it help for politicians to actually answer questions, rather than sidestep them by throwing the question back and attacking other political parties’ solutions, proposals and track records?
- Might it be helpful to at least discuss the U.K.’s decision to leave the European Union or will stubbornness win the day? After all, the ruling Conservative Party was not 100% committed to leaving the EU. There was much pushing back within the party, or so I seem to remember.
- Is the last period just one in which interest rates have finally returned to normal levels in which it is recognized that interest rates on very high value mortgages are not going to be extremely low.
- Might it be a good idea for there to be a real, sober, adult discussion perhaps on why inflation in the U.S. is currently far, far lower, at 4%? In France and Germany, inflation is a little lower, at 6% and 6.3%, respectively. Let us also not merely blame the events in Ukraine, even if it is proved it is the Russian invasion that is prompting all of this. Is energy and food inflation, far higher than average inflation, a large part of the problem, considering more discernible income will evidently move to paying for these increases, and does such supply side inflation exist outside of the influence of interest-rate rises?
- Is the fact that there might not be a general election until Jan. 28, 2025, allowing Members of Parliament to drag their heels?
I am very interested in this and would love your reaction. I am not an economist, and I would rather understand the science, rather than getting increasingly sadder when I see immeasurably polarized political discourse on a subject that for many equates to real pain turn into a scoring match between the political parties.
Or is it just the case of the good times of the last few years — even years containing a pandemic — making the populace and electorate soft and not cognizant of economic truths?
In response to the rising interest rates, UKHospitality CEO Kate Nicholls reiterated the concern to the hotel industry: “Hospitality has a proven record of delivering growth and creating jobs, and we want to achieve that £29 billion ($37 billion) economic boost by 2027. However, steep increases in interest rates will quickly stifle growth and squash that potential.
“Hospitality has significant levels of business borrowing, including £10 billion alone from the pandemic, and it is a worrying situation if businesses have no choice but to prioritize loan repayments over business investment. … Combined with other cost pressures across energy, food and drink, this is quickly becoming a ticking time bomb that needs urgent attention.”
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