If Sunak gets elected PM interest rates won’t rise

I’m seeing a lot of folk on Twitter referring to an article in The Times which states that the tax cuts proposed by Liz Truss will lead to a UK Bank Rate of 7%. In that instance mortgages will rise to possibly unaffordable levels. It appears to me that this article is floating the idea that, if Rishi Sunak gets elected, the UK Bank Rate will remain low. The UK Bank Rate is currently 1.25% and is due to be reviewed on the 4th of August.

Yet I cannot, for the life of me, see how Sunak being elected to PM is going to change the fact that energy prices in UK will rise by 60% in October. Is a 60% rise in energy prices inflationary or not? Of course it’s inflationary, these rising energy bills will probably send the inflation rate to 15% or more (current UK inflation is 11.7% measured by the Retail Prices Index).

So, will the Bank Rate have to rise to combat inflation even if Sunak is elected? Of course the Bank Rate will have to rise, in fact, there’s an argument that the Bank of England have been far too slow in raising interest rates, and we are now at the point where inflation in the UK is out of control.

When Margaret Thatcher came to power, inflation stood at 25%. To get inflation down she allowed the Bank Rate to rise (the BoE wasn’t independent back then). The Bank Rate rose quickly to 17% and caused a recession, but, inflation was eventually defeated. The fact is, if inflation is out of control, the Bank Rate must rise regardless of who is PM.

Now, there is a possibility that the Treasury has put political pressure on the Bank of England to keep rates low. Sunak, during the pandemic, opened a line of credit from the BoE when he signed a Deed of Indemnity prior to the latest Quantitatve Easing programme. The money he borrowed from the Bank was linked to the Bank Rate which was 0.1% at the time. Every time the Bank Rate rises, UK debt which was created from QE costs more to service. In June 2022, this led to interest payments of £19 billion, the highest monthly debt interest on record. One quarter of the National Debt is linked to the Bank Rate by the way, and the current Bank Rate is 1.25% (due for review on 4th August).

So, Sunak isn’t going to stop the Bank of England raising interest rates. Sunak isn’t going to stop energy bills rising by 60%. He has no solutions to the problems he created. He likes to talk about not borrowing, but, it is he that borrowed over £400 billion and it is he that allowed the National Debt to rise to £2.4 trillion. The article in The Times is aimed at putting the fear of God into mortgage payers, but even I know that the vast majority of mortgages in UK are fixed, most of them for five years. Scare tactics is all these politicians have, they are devoid of intelligent thought and practice.

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