Economy Still Growing Despite Rate Rises

The UK economy is continuing the blossom despite interest rates rising 1.25 percentage points in less than a year. The continued growth of the economy means we look set for further rate rises in the near future.

The Bank of England was hoping to curb spending and hence inflation rates by initiating the highest series of rate rises for a good few years but it doesn’t appear to have worked.

My opinion on this is split. On one hand, a strong economy is obviously great, but there will come a time when things need to even up in terms of money owed and money owned. The economy is being built on credit and while this is slowing down, with tougher regulations and banks being stung by bad debts, people can still get enough credit to buy luxuries. This will eventually reach a point where there is simply no credit left and we’ll see things slow down. I would be perfectly happy to continue this whole credit based economy if someone could guarantee we’d never get our comeuppance….

I was talking to a friend earlier regarding house prices compared to average graduate salaries and we came up with an interesting theory. Young people that simply cannot afford to buy are giving up on saving for a house and spending their disposable income on luxuries. We’re the instant generation and find it hard not to buy all these new gadgets we see. My friend is supposedly saving for a house, but this week he has bought a Nintendo Wii and some expensive cigars. He also owns several guitars and quality amplifiers. He admitted that he honestly cannot see himself buying anywhere so he just spends his cash on what he wants.

I’ve a feeling there are many more people like this about and the reason increased rates aren’t slowing down inflation is because they are not affecting the people who are driving inflation. Increasing interest rates mainly stops homeowners from spending and the majority of homeowners are over 30. None-house-price inflation is being driven by spending on material goods which is coming from people below 30…

I’ve no figures to back this up, so feel free to shoot me down on this!

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