I knew you had a degree in finance as your answer reads like it's from a text book especially as you're talking about supply and demand which means you haven't grasped the situation at all which I'll let you off as you're living in a different country.
I actually understand the “situation,” but that’s not what the question was.
The issue you have is a hell of a lot of people already have £0 to spend, do you understand this? literally £0.
Thats bollocks for the vast majority of people, but I’ll go with it for you for your argument…
Raising rates means they'll also have £0 to spend, literally nothing again except this time is even more households being sucked in, my quick estimate shows this is about 30% of all households, 30%!!!! 10 million homes to put it into real terms are stugggling, really struggling. All raising rates will do is cause an even bigger recession because guess what people have £0 to spend.
IF 30% of households have MARGINAL £0 to spend, that sounds BAD, but it is meaningless to the fact that the things that they DO have to spend their money on already are going UP! Why? For the reasons I cited, which means the £0 households have choices to make. Go without the iPhone, car, holiday, night out, takeaway OR pay their electricity bill! I get it! Been poor.
The reason they have zero to spend? well its the fact that energy bills have gone up 400% in over a year nothing else has caused this. The fact that it's an essential product means natural supply and demand theory doesn't come into the equation when it comes to personal finances. There is no choice to be made in this regards, we have zero choice of supplier, zero choice of getting a cheaper product, zero choice of not having energy. This is NOT a market which is something you should be able to understand. Raising rates is economic suicide in this situation. Btw I have a PhD in mathematics if you want to willy wave.
Raising rates is a blunt object and does what it says on the box. The problem is not the supply-demand equation that creates the inflation and requires the rise in interest rates, but the underlying societal issues that must be addressed as these changes take place. I watch Turkey with interest, as they take an opposite tack, albeit from a starting point that already has double digit interest rates!
The societal issue of high energy costs at a time of multi-billion pound profits in the energy sector is especially galling, but not a problem that is going to be solved by the MACROeconomic issues of a global energy market.
It is incontrovertible that the global energy market is driven by supply and demand, both at the pump and through the meter (because electrical/gas energy has to be “made” somehow), even if Britain’s micro issues require a local response.
The marginal dollar/pound is ALWAYS where the supply-demand imbalance has the greatest effect, and can often drive personal consumption choices. Your point appears to be in a situation where there is NO CHOICE, inflation causes are irrelevant. I would hypothesize that they have a much larger relevance because of their lack of choice.
There seems to be some cross confusion on the macro-micro effects and causes of the pain, but the macro drivers are what LEAD to the micro problems for many, especially those without marginal purchasing power or the ability to choose. You believe 30% of Britain is currently experiencing the negative effects of the lack of both (marginal purchasing power & choice), which may well be true, but that “fact” (I have not checked it) is literally being driven by the “textbook” description I gave you and it’s after effects in the macro environment.
I hope that wasn’t too obtuse, but I think it is an important discussion, especially for millions of families who may not be in the position to exercise their free market will.
