Should the Bank of England raise interest rates?

"The Bank of England categorically should not raise interest rates, or at least not yet. Post 'Credit Crunch', we have created a highly leveraged world but also a highly sensitive one. One wrong move now by Threadneedle Street and it will be roadkill for Christmas lunch, not turkey. "Equally, doing nothing will only exacerbate the problem. We are currently living in a benign world where cheap money is seen as a given. That's fine but people need to know that it's a double-edged sword. We either accept a slow and laborious return to realistic borrowing rates or a high octane life of prices increasing faster than our incomes. We can't have our cake and eat it."

"A hike in interest rates will feel like a kick in the teeth for small business owners, just as they are getting their heads around a rise in National Insurance and Dividend Tax (before it becomes the Health & Social Care Levy), plus the known increase in Corporation Tax to follow. An increase in interest on borrowings is the last thing anyone needs right now."

"To raise interest rates just as the furlough scheme comes to an end would be madness. Many small business owners have taken out business, personal and bounce-back loans to ensure their survival during the pandemic. A majority of these businesses are not even close to pre-Covid income yet: it could either push businesses to fold or raise prices to accommodate the extra outgoing costs."

"Increasing interest rates right now could have a serious impact on employment levels and put those who have been made redundant in an even tougher position. Ultimately, it will take the economy longer to recover from the pandemic. However, we are experiencing huge skills shortages and vacancies are at record levels so the economy may survive a small tweak."

"I can't imagine Rishi Sunak will mind too much if inflation remains high for a few quarters as it will shrink the national debt to GDP ratio, which is now astronomically high. If inflation is truly being caused by supply side issues including a shortage of labour, then a rise in the base rate is merely a sticking plaster. Making it more expensive for firms to borrow won’t help the situation. "Having the base rate at 0.1% can make the MPC nervous as it removes their ability to lower the rate if it’s already at rock bottom. Getting back to 0.5% at least gives them some wriggle room if there’s a down turn in the near future and could avoid a liquidity trap."

Given that the inflation figures are based on the price difference between 2020 and 2021, and given that 2020 was an unprecedented year, I would hope not. The logic being that these price rises are not "baked in" and will unwind over the next 12 months. The MPC at the Bank Of England have always looked at the wider economic impact of rate increase too, as well as taking a long-term view of any decisions they make. I'm not sure the economy is in a place to absorb a rate increase just yet. So, I would hope they hold off for now.

“As someone whose mother lost her home due to the stratospheric interest rates of the late 80s (think circa 14%), I am sanguine about micro-increases in interest rates. In the grand scheme of things these are minuscule adjustments. Yes inflation is skyrocketing but much of that is adjustments from the bust of lockdown to the post lockdown boom as opposed to a sharp jump in consumer prices. I’m confident inflation will settle back down, and the impact on interest rates long term will be negligible.”