Inflation Economic woes as interest rates rise again

Transcript

00:00 Hanging by a thread. With interest rates rising, businesses and households are under ever greater

00:06 pressure, ever more likely to dip into the red. Like many, this textiles company took

00:11 on extra debt during Covid. Debt that's now getting much more expensive.

00:16 The current level of demand within manufacturing is softening and because of the interest rate

00:24 changes, financing within a business is becoming increasingly more expensive, you know, thousands

00:32 of pounds a month and that is a direct cash flow hit on the bottom line and it's something

00:38 that we aren't getting much sympathy for from government.

00:42 Or from the Bank of England. Not only has it raised rates, it's signalled that they

00:46 may have to stay higher for longer.

00:49 We've got to get inflation back down to target. Now I think it will come down quite substantially

00:54 by the end of the year. It won't be back to target. We've got more to do next year and

00:57 we will do it. But it is on the way down now.

01:00 If they're right that interest rates are going to be higher for longer, then that has all

01:03 sorts of other implications. It means borrowing is lower, investments lower, the economy,

01:08 well they may not be forecasting a recession but when you look at the projections, they

01:12 are talking about not just a few months but a few years of flatlining. That is pretty

01:18 bleak.

01:20 Let me give you a sense of what that means. This line is the size of the UK economy, total

01:24 national income. Before the 2008 crisis it was rising quite fast, then it took a dive

01:30 but seemed to be recovering until Covid. But here's where that bleakness comes in because

01:35 today's forecast from the bank means we're now on a completely different trajectory.

01:41 The Chancellor insists he's doing what he can.

01:43 We should recognise that there is a lot of pain for families, for businesses. The process

01:49 of getting there is very tough. So what we have to do is stick to the plan to get there

01:53 as quickly as possible because once we get inflation down, you can start to see a path

02:00 where interest rates will come down and that will relieve the pressure on families with

02:05 mortgages and that's what we want to happen as soon as possible.

02:09 For those who have paid off their mortgages, higher rates might be good news. Higher returns

02:13 on their savings. But for those with mortgages, especially those like Joe on a floating rate

02:18 deal, it's a recipe for disaster.

02:20 It's really stressful because I'm thinking what's left, where else can I go with this,

02:26 what else can I do? Sleepless nights, having to think about cutting everything out basically

02:32 just to survive and keep the house. And I thought having one full-time job, I've worked

02:40 all my life full-time, that would be enough but in this day and age it's not enough.

02:46 This period of difficulty won't last forever but, says the bank, it might last that bit

02:51 longer than many had expected. Ed Conway, Sky News.