As an avid News watcher, I thought I understood why banks raise interest rates.
If the News is to be believed, they say that when inflation starts to go up, the Bank of England raises interest rates to help the UK public. They say that raising interest rates cuts back the spending and borrowing habits of UK consumers, thus bringing down inflation, and thus ensuring a stable and healthy economy for all. It is claimed that by keeping inflation low, UK consumers are protected from rising prices, industrial strikes, and the value of the pound in their pocket is maintained.
So far, so good. The Bank of England is our friend. Its motives are purely altruistic. Allegedly.
Yet currently, the UK consumer has less money in its pocket to spend than ever before. People aren't causing inflation by over-spending. Quite the opposite is true. Due to the current hike in energy and food prices, people are struggling to make ends meet. For a great number of people, it is a choice between heating their homes or putting food on the table. Some may be able to do neither.
So why in the current circumstances are the Bank of England piling even more financial hardship onto the UK public by raising interest rates and the cost of their mortgages? I thought the Bank of England was our friend.
And then it dawned on me.
As inflation rises, the value of money decreases, and in the case of the Bank of England (and all other banks), it is necessary to raise interest rates to prevent the bank profits from decreasing.
That's the real reason banks are raising their interest rates when doing so only increases public suffering.
The Bank of England is not our friend.
The Bank of England is a privately-owned business, and like all businesses it cares most about its own profits.
It doesn't care tuppence about whether its actions are hurting the public.
The Bank of England cares only about itself.