The Bank of England has implemented the biggest rise in interest rates for more than 30 years, increasing the bank rate by 75 basis points to 3 per cent. The rise is designed to reduce inflation, which reached 10.1 per cent (as measured by the Office for National Statistics’s consumer price index) in September. The basic principle is that by making borrowing more expensive, higher interest rates dampen demand in the economy, and with lower demand comes lower prices.
However, it’s not as if the UK economy is in danger of overheating: household debt is more than 130 per cent of yearly earnings, and in September consumer confidence hit its lowest point on record. A recession is inevitable and has, in many sectors, already begun. So why make it worse?
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