On 22nd June 2023, the Bank of England made a significant decision to raise the base interest rate. While intended to control inflation and stabilise the economy, this move has already begun to exhibit negative consequences across various sectors.
Mortgages and Debts
The immediate effect of a base rate increase is higher borrowing costs. People with variable-rate mortgages, business loans, or credit card debts will notice a sudden increase in their monthly payments. This phenomenon places an enormous strain on already struggling households and companies, potentially pushing many closer to financial distress. Additionally, consumers may experience reduced disposable income, leading to decreased spending, which, in turn, impacts the country’s economic growth.
Economic Slowdown and Unemployment Woes
Higher borrowing costs translate into reduced business investment. Companies become less inclined to undertake new projects, expand operations, or hire additional employees, apprehensive about the increased financing costs. Consequently, this dip in business activity can lead to a slowdown in the overall economy. Unemployment rates may rise as companies hesitant to incur higher costs begin to lay off workers, adding further strain to already burdened households.
Strained Consumer Spending
Increased borrowing costs trickle down to consumers, causing a considerable impact on individual spending habits. With mortgages requiring more money and credit cards attracting higher interest charges, households are left with less disposable income for discretionary spending. This reduced purchasing power restricts consumer spending, adversely affecting businesses reliant on consumer demand. The retail sector, hospitality industry, and leisure activities stand to suffer the most, potentially leading to job losses and business closures.
While the Bank of England’s decision to raise the base rate on 22nd June 2023 aimed to combat inflation and stabilise the economy, it has had undesirable consequences across multiple sectors. From escalated mortgage and debt pressures to economic slowdown and constrained consumer spending, the increased borrowing costs have sparked a domino effect of negative impacts. If you are experiencing problems as a result of rising costs, you can contact one of our debt advisers today. Contact us by calling our Debt Telephone line on 0808 278 7839 or complete the online form to arrange an appointment.