The Bank of England is holding interest rates at 0.1% and forecasting that inflation will reach 5% by April 2022 (see here and here). They are also signalling that interest rates are destined to rise, with most pundits suggesting the rise will be to 0.25% sometime next year. With this continued huge gap between interest rates and inflation, it’s obvious that anyone who’s been thrifty and built even modest savings in a bank or building society account continues to be massively penalised for their prudence. There’s no point having savings in a bank anymore, and with shrill commentary rampant in politics, the media, and on social media about commodity prices, energy supply problems, labour shortages, computer chip shortages, and general supply chain woes, there seems little point in trusting that the future economy will be stable, or in believing that inflation will be limited to the 5% the BoE is predicting.
The Badger isn’t normally so gloomy, but there are a few signs that this decade could see the kind of inflation turmoil last experienced in the 1970s. Two particular things have influenced the Badger’s mindset, namely looking at a graph of UK Inflation since 1960, and purchasing a meal from a Chinese Takeaway in Crawley. Firstly, the graph shows that the UK inflation rate hasn’t been close to the BoE forecast of 5% for 30 years. With the world the way it is at present, the time seems right for a period of inflation turmoil akin to that of the 1970s. Secondly, the takeaway was 10% more expensive than the same meal two weeks ago. The outlet in question, one the Badger has used many times, has a notice in the window telling customers that 10% will be added to the prices on the menu to cover rising costs. Customers have complained, apparently, but as yet there’s been no drop in footfall. When the average person is already paying 10% more for their takeaway, 10% more to fuel their car, and likely much more to heat their home, then it’s not unreasonable to think that the BoE’s 5% inflation forecast, and thus the ceiling of the last 30 years, will be breached.
The derisory interest rates on savings and their large disparity with inflation look destined to continue for a long time yet. When money is guaranteed to massively lose its purchasing power, there’s little point in parents and grandparents encouraging thrift and prudence in kids. Encouraging them into the habit of saving is under considerable pressure and could be facing extinction, which would certainly be to the detriment of society.
The Badger’s wife, helping our grandson drop a few coins into their piggybank, says the Badger’s pessimistic outlook must be a reaction to his recent Covid booster jab. The Badger doubts it, but you never know…