Inflation... are interest rate rises the best solution?

[Sam_Brown]

Assuming one of the main weapons to get inflation under control is to try and stop people spending as much money... I never understood why raising interest rates was seen as the be all and end all of controlling inflation. It seems like a sledgehammer to crack a nut.

The poorest people already struggle and so they have little to no disposable income already so it won't stop them spending when they already can't and simply make them even poorer. The "upper middle income" earners and the "rich" while affected still seem to be spending loads of money... I was driving past out of town shopping village the other day and it was still f***ing rammed.

Surely raising taxes and targeting it at the people who need to stop spending money is a more sensible and fairer solution. Not only do you reduce spending (tick) you also get more money for the government to reinvest in services that are crying out for it (tick).

Surely this isn't some mastermind thought I'd just had and it seems to entire reason for not doing so is purely political in nature.

[New Forester]

Higher interest rates make it more expensive for people to borrow money and encourage people to save. Overall, that means people will tend to spend less. If people spend less on goods and services overall, the prices of those things tend to rise more slowly.
Higher interest rates can also increase the value of the pound compared to other currencies. That will tend to push down the prices of goods that businesses import from abroad, which also helps to lower inflation.

These are the classic arguments for higher interest rates. While being sympathetic for people with cheap mortgages facing huge increases spare a thought too for people whose savings who have seen a massive drop in value during the years of neglible interest earnings. This old timer has lived through inflation exceeding 20% and had a mortgage rising to 15% in the 70s. Low interest rates were never going to last forever.

[Charente]

Raising taxes is not very popular.

[Sam_Brown]

Raising taxes is not very popular.

No not at all.

[Sam_Brown]

Higher interest rates make it more expensive for people to borrow money and encourage people to save. Overall, that means people will tend to spend less. If people spend less on goods and services overall, the prices of those things tend to rise more slowly.
Higher interest rates can also increase the value of the pound compared to other currencies. That will tend to push down the prices of goods that businesses import from abroad, which also helps to lower inflation.

These are the classic arguments for higher interest rates. While being sympathetic for people with cheap mortgages facing huge increases spare a thought too for people whose savings who have seen a massive drop in value during the years of neglible interest earnings. This old timer has lived through inflation exceeding 20% and had a mortgage rising to 15% in the 70s. Low interest rates were never going to last forever.

Very useful. Cheers.