Where the cost of living crisis came from?
1. Why does inflation happen and what can be done about it?
Inflation is an increase in the price of goods and services in an economy. High inflation means, crisis, that people can buy less with their money. This can happen for a number of reasons: a run on a country’s currency that increases prices of imported goods; a large stimulus to the economy when the system is already at or near full capacity; a strongly unionised labour force exercising its bargaining power; a sudden crisis of labour (following Brexit, for example) or international cost-push factors outside an individual country’s direct control.
2. Why do interest rates matter?
Most economists regard the interest rate solely as a policy lever to be used for controlling inflation. Thus, when inflation falls below the central bank’s target, which in most developed countries is set at 2%, interest rates come down and stay down. Low rates encourage individuals, companies and countries to borrow, and to spend, boosting economic growth. This is what happened over the past decade. But when inflation climbs above the target level, as it has done in recent months, rates are hiked, incentivising saving, rather than spending or borrowing.
3. What can the Bank of England do to help?
The Bank of England’s role is to ensure that, over time, prices rise as predictably as possible at a rate that is not too fast and not too slow. Specifically, we are tasked with keeping price growth at 2% a year. We have a committee of rate setters whose job it is to make sure this happens and who are democratically accountable to parliament.
At times when prices are going up too fast, meaning that the money in people’s pockets is losing its value too quickly, the Bank’s role is to slow that process and bring inflation back down. To do this it can increase interest rates and slow, or reverse, the rate of money creation (known as quantitative tightening). Ultimately this acts to reduce how much people spend and, subsequently, cools price rises
4. Will the crisis eventually bring down house prices?
The latest figures show UK house prices rising at the fastest rate for 18 years. However, this could well be a temporary phenomenon. Many middle- and higher-income households still have significant savings built up from the Covid-19 crisis, and buyers may be rushing to lock in still-attractive mortgage interest rates before expected rate rises by the Bank of England.
Within a few months, these factors could have played out and falls in disposable income – driven especially by the increase in price caps on energy bills, due in October – will be substantially reducing first-time buyers’ ability to save for a deposit.
HICH LTD has continually raised the quality standards in the UK property survey market. Our multi-award-winning property survey service has made us the leading reference in the property survey market.
We offer property survey services of the highest quality. Using state-of-the-art equipment, we provide top-notch property surveys at affordable prices. Our prices are based on the number of rooms rather than the value of the properties, so you will always get the best value for money with our services.
Please look at our Trustpilot page and see why customers have chosen us as their favourite property survey provider!
At HICH LTD, we work to serve our clients and make the world a better place for everyone. We actively collaborate with NGOs to promote environmental, social and charitable causes. If you want to know more about our efforts or how you can help, contact us at hichinfo@aol.co.uk.
Are you looking for a roof, structural, or bespoke survey? Request it here!
Follow us on our social networks to keep updated with the most relevant property market news, tips for being a responsible homeowner, and more!
Twitter: @HICHLTD
Facebook: HICH-LTD
