Higher interest rates can have a disproportionate impact on younger workers and those on lower incomes, potentially exacerbating existing inequalities in society.

In a recent interview with the BBC, Dr Swati Dhingra, a member of the Bank of England’s Monetary Policy Committee, expressed concerns about the potential negative effects of higher interest rates on households and businesses. She highlighted that the economy is already struggling and that only a fraction of the impact of interest rate hikes has been felt so far. Dr Dhingra warned that the consequences of these rate increases could be more severe than anticipated, potentially leading to weaker spending, job cuts, and a rise in inequality.

Younger workers and those on lower wages are likely to be hit the hardest by higher interest rates. These groups are already among the most vulnerable to inflation, and the additional burden of increased debt repayments could further strain their finances. Dr Dhingra emphasized that price increases in essential goods like energy and food tend to have a greater impact on these individuals, and higher interest rates can compound the challenges they face.

Dr Dhingra acknowledged that her colleagues on the Monetary Policy Committee did not make the decision to raise interest rates lightly. She mentioned that they are well aware of the hardships faced by many households and businesses, and that they are not indifferent to the suffering caused by economic policies. However, with stubborn inflation in the UK, there is a need to address these concerns and take action to curb rising prices.

The International Monetary Fund (IMF) has cautioned that interest rates may remain at their current levels for up to five years, and some Bank officials have suggested that they are unlikely to decrease in the near future. However, there is still uncertainty surrounding the trajectory of the economy. Last month, the Bank’s decision not to raise rates again came as a surprise to many. Dr Dhingra pointed out that if economic growth falters more than expected, a rate cut may be implemented sooner than anticipated.

In conclusion, the potential consequences of higher interest rates on younger workers and those on lower incomes should not be overlooked. The combination of inflation, rising debt repayments, and job cuts could worsen existing inequalities in society. As the economy continues to navigate these challenges, it is important for policymakers to consider the impact of their decisions on vulnerable groups and take steps to mitigate any adverse effects.