Record interest rates leave low-income families with still more impossible trade offs says JRF

Commenting on the decision by the Bank of England’s monetary policy committee (MPC) to increase interest rates to 4.5%, JRF senior economist Rachelle Earwaker, said:

“Record interest rates, the highest since 2008, are about much more than higher mortgage payments but it’s worth remembering that seven in 10 low-income mortgage holders told us they had to go without essentials going into last winter.

“Unbearably high inflation is completely outstripping the incomes of millions across the country. The bank’s forecast that inflation will fall back to its target by the end of 2024 doesn’t mean prices will fall, it just means they’ll rise less quickly.

“We know 2.7 million low-income households are having to take on debt as a means to afford the basics like rent, food and energy. Now, the cost of that debt is rising, and the income threshold in order to be approved for a loan is rising too.

“Family budgets are being hit on multiple fronts by rising costs, leaving millions with increasing levels of debt, or arrears, or they are forced to go without the essentials. A big concern is that food inflation will be persistent leaving low-income families with still more impossible trade offs. The scarring effects may be felt for years to come, in the form of worse health and unmanageable debts.

“Raising interest rates may be a tool to address inflation but it doesn’t help families afford their bills.What’s clear is people have run out of time and need proper solutions to problems. The government needs to make sure that at a minimum, everyone is able to afford the essentials and that Universal Credit is always enough to meet the costs of basic household items.“