Changing Tides: The Cost of Living Crisis in the Wake of Interest Rate Increases

The cost of living crisis has been perhaps exacerbated by both the recent government mini-budget and the continued increases in the Bank of England base rate. These base rate hikes have been deemed necessary to control inflation within the UK. However, the success of these measures remains uncertain, as does the actual impact of the rate rises.

The current economic repercussions of these interest rate increases may only be a precursor to the full impact yet to be felt within the economy. As we progress through 2024, more and more fixed-rate mortgage terms will conclude, and homeowners will find themselves facing significantly different repayment obligations. While this transition has begun, many have not yet experienced such a shift in their mortgage terms.

As the economy navigates this transition to higher-cost credit, we can anticipate a temporary dip in house prices and a more substantial reduction in economic activity among the majority of citizens. However, due to the uneven distribution of wealth in a free society, it’s likely that GDP will continue to increase, even as financial hardship affects many.

TPEX thinks about the future.