YESTERDAY’S announcement by the Bank of England of an increase in interest rates from 0.5% to 0.75% will be disastrous for the vast majority of workers and sections of the middle class who are only just scraping by or surviving from day to day on debt.
This increase of 0.25% may sound insignificant but in reality it means that anyone with a mortgage will end up paying more every month. 9.1 million households have mortgages in the UK and more than 3.5 million are on mortgages with variable rates who will see an immediate increase.
The rest who are on fixed rate mortgages will see the increases when the fixed period expires.
The monthly repayments for anyone with a mortgage of £250,000, by no means an excessive amount in the sky-high UK property market, will end up paying an extra £400 a year. Even a small increase in what is an essential cost for homeowners already struggling to make repayments will tip many over the edge financially.
While anyone with a mortgage will be hit hard, the effect of the increase on those only surviving through credit card debt and payday loans will be catastrophic. Last week, the Office for National Statistics revealed that in 2017 the average UK household spent £900 a year more than they received in income. This is the highest amount since records began and any increase in the debt burden will prove catastrophic with millions of families already relying on the charity of food banks, bank loans and payday lenders just to survive.
For those lucky enough to have savings in the banks there will be no bonanza from the increase.
Last November, the Bank of England increased interest rates from 0.25% to 0.5% but savers received derisory increases with the banks passing on just a fraction of the increase, typically just 0.07% or 70p a year for every £1,000 in savings. The rest was kept by the banks to swell their profits.
It is the overwhelming drive to save the banks that is behind the whole issue of interest rates.
Rates were cut in 2009 to the historically low level of 0.5% in a desperate attempt to prop up a capitalist banking system that was collapsing. By showering the banks with free or cheap money through Quantitative Easing and near zero interest rates the central bankers kept the banks from crashing.
The banks used this money in wild speculations in stocks and shares driving the world’s stock markets through the roof, creating a giant debt bubble that is on the point of exploding. At the same time the working class was being hammered by the most savage austerity cuts to wages and jobs and forced to make use of cheap loans just to cling on. Now the era of cheap loans has ended.
Carney justified the increase on the grounds that it would deter people from taking on more debt and therefore start to deflate the debt bubble. He ignored the fact that workers are not taking on massive debts to fuel extravagant lifestyles; for millions debt is the only way to feed, clothe and keep a roof over their heads.
Carney brushed this aside saying that what was important was ‘the economy as a whole’ and that just 2.5% of households in the UK would have to take ‘significant action’ to adjust to the rate increase. In fact the entire working class must take significant action to prevent the mass pauperisation of millions of families swamped by unrepayable debt and their lives turned into a living hell.
What is clear is that capitalism cannot provide for any future for workers and young people except misery and debt, it is long overdue to put an end to this system, that exists only for the profit of the bankers and bosses, through the victory of the socialist revolution and advancing to a socialist economy where the banks will be nationalised under the control and for the benefit of the working class.
