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In this article, in the FT, Sarah O’Connor argues that the impact of high interest rates is less effective at demand suppression than has historically been the case. The exclusion of the young from the housing market and the impact of older people having finished paying off their mortgages has led to reduction in the number of households with mortgages, from 40% to 30%. It interests me, that the author argues the purpose of increasing interest rates is demand suppression and yet its effectiveness as a demand suppression tool is less than it once was.
The fact that older home owners have paid off their mortgages and that the recent housing prices have made it harder to get on the housing ladder, means that the interest rate increases are being born by workers in their 30’s and 40’s. A side effect of the squeeze on demand is increased unemployment and fewer vacancies; this policy as a narrower cohort of victims who are suffering a Tory double whammy of super inflated costs, and a squeeze on jobs and wages which means that people can’t get better ones to earn more.
This is unfair and will come to be seen as such. It prefers, once again, the older, wealthier, and retired cohorts in our society.
The fact is the intergenerational contract has been broken for decades but this is another nail in the coffin.
