Debt-ridden households are about to find the world a MUCH more expensive place as interest rates rise
‘Consumers can’t save the economy this time’: Debt-ridden households need to get their finances in order for a more expensive world, says ADRIAN LOWERY
I was all set to eat out to help last August – even though I never went for Rishi’s discount dishes.
As a restaurant and pub aficionado, I’ve never needed any persuasion to eat out, so during the last inter-lockdown period we happily headed to some of our favorite haunts.
Both were disappointing in similar ways.
We felt that the things that made eating out so special – apart from the hassle of shopping and cooking, the ritual of choosing and ordering, good quality food in a civilized atmosphere, which we enjoyed at your leisure – on somehow deteriorated.
There are some temporary factors on the supply and demand side that play a role in inflation, but prices rise much more easily than they fall. Life in the hopefully post-pandemic world will be considerably more expensive.
Plus, I spent decades rationalizing London prices, but it all seemed drastically expensive.
Why on earth spend a pack on a mediocre meal when you can eat and drink better at home for half the amount?
Even for a lover of the social hubbub, the circle is hard to square.
Likewise, the spontaneity and joviality of going to the pub for a pint with a friend, or with the papers, have – again, hopefully for the moment – been extinguished.
Pub managers seem to be sticking to many of the necessities brought about by the pandemic: booking tables, ordering through an app, everyone eating, not drinking, or standing at the bar.
For some of us, the pandemic has accelerated a long-standing trend: the sterilization (in more ways than one) of pubs and the pub experience.
So we withdrew to a more domestic life. And the more the savings add up, the more it seems like a good idea.
The government and most corporations want us all to go out and spend money again. In May, for the first time since August 2020, consumers borrowed more money than they paid off, according to the Bank of England.
Consumer confidence is on the rise, but is that confidence misplaced?
The anecdotal inflation that many of us observe at the weekly shop, or the intermission drinks at the theater bar or the B&B booking, is already showing in official figures.
There are some temporary supply and demand factors at play, but prices rise much more easily than they fall. Life in the hopefully post-pandemic world will be considerably more expensive.
But rising prices are just the beginning. While the Bank of England is highly unlikely to raise bank rates today, it won’t be long before they and other central banks do.
People have used cheap credit in all forms, but mortgages in particular, have taken advantage of the lowest interest rates for the past decade or more to build up debt that is virtually usable. (Although not the same percentage of income as before the financial crisis.)
Mortgages have exploded. But bank accounts have to be balanced at some point.
However, a 1 or 2 percent rate hike will create an entirely new – and for many unprecedented – set of circumstances. Especially for those who don’t have access to the cheapest mortgage deals.
And this is before considering the inevitable impact of tax hikes as the Treasury recoup the lingering costs of the pandemic and Boris’ leveling agenda.
Frozen income tax thresholds, an increase in national insurance contributions… a nibble at a pension discount here, increases in municipal taxes there… wherever you stand on the virtues or otherwise of tax and expenditure, it all makes sense.
It makes no sense for a heavily indebted household to go out at a time like this. I sympathize with those involved in retail, leisure and hospitality, but the consumer cannot be trusted this time to keep the economy afloat.
It’s a time to be thrifty until the new cost of living becomes apparent.