Two Years of ‘Stagflation’ Ahead, Bank of England Warns
Debtors who are struggling with the rising cost of living will have a long time to wait before things improve, the Bank of England has warned. The bank has predicted that Britain faces at least two years of “stagflation”, a period of rising interest and limited financial growth. The Bank also suggests that Britain may face a housing crisis to match the US, with the threat of rapidly falling prices matched by a significant increase in the number of repossessions.
The only silver lining to this economic cloud is that the Bank of England is expected to cut interest rates twice in the months ahead and hence reduce the cost of borrowing. However, there is no guarantee that the savings will be passed on to ordinary debtors. Recent cuts in interest rates have helped mortgage providers rather than homeowners, as lenders seek to protect themselves against the worsening economic situation. Borrowing, both in for mortgages and ordinary credit, is likely to continue increasing in cost, as are food and fuel prices.
This will be an urgent wake up call for many. Despite the financial difficulties faced by an increasing number of Britons, many have been acting as though the higher cost of living and troubled house prices were a temporary blip rather than a steady decline. Things will get better in the future, but it is a future that years rather than months away. Debtors will have to plan carefully in order to make it through the difficult times ahead. Above all, they must be cautious about taking on credit in order to help with temporary costs. This strategy might work if the economic troubles were only going to be short term, but since it may well be years before things improve regular use of credit is likely to prove a recipe for disaster.
