Rate rise will deter more investment
THE increase in the bank rate by 0.75% was well trailed and entirely predictable.
However, it will be a major deterrent to investment by businesses right across the spectrum who have been used to cheap money for a long time.
I feel sorry for all those wishing to get onto the property ladder, for this increase will inevitably be a stiffer hurdle, especially as, according to Matthew Lowe of Fine & Country, the average price for a semi-detached house is now about £273 per sq ft.
When I purchased my first property way back in 1957, a semi in Great Barr, the asking price was just about four times my gross salary.
I was earning £575 per annum and the property cost me £1,960.
Fortunately, 95% mortgages were readily available... although, in those days, building societies nor banks would take a wife’s earnings into account.
Interest rates then were circa 6% and life was therefore a bit tight, there being no luxuries affordable, certainly not a television.
Today, properties at the lower end of the market are offered for sale at about seven times average earnings, but a couple’s combined salary is considered.
Nevertheless, this latest increase may well lead to prospective purchasers reconsidering their position, leading to a property market correction. I don’t think a substantial downturn in asking prices is likely because the price for raw materials has risen substantially, and these increases will have to be passed on.
In so far as business is concerned, it is inevitable that unless Government comes up with a system of additional grants, investments are likely to be postponed, especially when the Bank of England’s chief, Andrew Bailey, forecast some two years of gloom ahead.
Such statements are not confidence building and CEO’s will be carefully considering if now is the right time to go for that more efficient, but very expensive bit of kit.
Next week’s Autumn Statement will not be a catalogue of joy either. These are difficult times for all thanks to Covid and Putin which could not have been forecast. Inevitably, much belt-tightening to come.