Bank of England's interest rate hike is a flawed decision

Talking of capital, the pro-capital Budget has been quickly followed by a hike in borrowing costs for business and we mortgage slaves.

If you're among the unlucky 2.4m whose fixed rate deals are expiring, your monthly payment could be jumping up by an extra £350/mth with figures of 5.7 per cent on offer by lenders. The average increase will be £31, so it's an extra burden for most people.

Sheffield University's Emeritus professor Richard Murphy says the logic behind the Bank of England rate hike is flawed. Its governor argued on Thursday that his panel had imposed the 0.25 per cent increase "to limit inflationary pressure" from rising energy costs (caused by the Netanyahu/Trump Axis war on Iran). This suppresses demand by making mortgages and business loans more expensive, both discouraging investment and curbing household spending power.

But this hasty decision is based on out of date figures. The rate increase came in response to oil prices of $108/barrel, but it's now $94.

Inflation too has been lower than expected at 3.5 per cent instead of the forecast 5 per cent. And growth's now expected of 0.7 per cent from July-September, instead of 0.2 per cent,

It illustrates how most economic planning is pure guesswork. Professor Murphy goes further and says higher interest rates increase business costs leading to higher prices (ie inflation!)

"The bank is imposing economic pain to address a problem it cannot solve... Far from sound management, it is dogma that fails to distinguish demand inflation from supply shocks."

Perhaps the Bank of England's Monetary Policy Committee should recruit Professor Murphy to join it.