‘The scarring effects may be felt for years to come, in the form of worse health and unmanageable debts.’
The Bank of England hiked interest rates again this week, in what was the 12th consecutive rise since December 2021. Rising by another 0.25 percent, the base rate now stands at 4.5 percent. The Bank of England claims that raising interest rates is the best way to bring down inflation, which is “fundamental for a healthy economy.”
The announcement is bad news for borrowers, and charities, trade unions and debt experts have issued multiple warnings about the impact the rise is likely to have on low-income households.
Research by the Joseph Rowntree Foundation (JRF) found that, going into last winter, seven in 10 low-income mortgage holders were going without essentials, as “unbearably high inflation” outstrips the incomes of millions across the country. The charity also found that around 2.7 million households on low incomes are being forced to take on debt to afford basics like food, energy and rent. And now the cost of debt is rising.
Rachelle Earwaker, senior economist at the Joseph Rowntree Foundation (JRF), spoke of how family budgets are being hit on “multiple fronts by rising costs, leaving millions with increasing levels of debt, or arrears, or they are forced to go without the essentials.”
“A big concern is that food inflation will be persistent leaving low-income families with still more impossible trade-offs. The scarring effects may be felt for years to come, in the form of worse health and unmanageable debts,” said Earwaker.
The economist at JRF is urging the government to make sure that, at a minimum, everyone is able to afford the essentials and that universal credit is “always enough to meet the costs of basic household items.”
‘Fuel to the fire’
Joe Cox, senior policy officer at Debt Justice, which campaigns to end unjust debt and its root causes, said that this week’s bank rate rise will add “fuel to the fire” for households that are already struggling with falling incomes and rising costs.
Fellow debt charity Step Change, which helps hundreds of thousands of people deal with their debt each year, made similar warnings about how the rise in interest rates is likely to be a further catalyst for problem debt, not only among mortgage holders, but also for private renters whose landlords have increased the cost of rents.
“The steep jump in interest rates we’ve seen over the past 12 months has been a shock to household budgets, compounding financial difficulty for people who are already struggling to make ends meet,” said Vikki Brownridge, chief executive of StepChange.
Paul Nowak, the general secretary of the Trades Union Congress (TUC), said another rate rise will make a bad situation worse.
“The priority should be protecting living standards and boosting the economy to safeguard people’s jobs. The best way to do this is by giving working people decent pay rises that keep up with the cost of living,” said Nowak.
Gabrielle Pickard-Whitehead is a contributing editor to Left Foot Forward
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