A rate rise was always coming – but Glasgow households are running out of room to absorb it
Higher mortgages, a bigger energy price cap in January and food inflation on the way: the Bank of England's decision lands hardest on families who were already stretched.
Tenement homes in the west of Scotland. Higher interest rates and energy bills are set to squeeze household budgets this winter. · Photograph: Leslie Barrie (CC BY-SA 2.0)
Nobody who has filled up a car or opened an energy bill this year will be surprised that the Bank of England has raised interest rates. With inflation at 3.5% and heading for 5%, Andrew Bailey and his colleagues felt they had little choice. Their job is to stop rising prices becoming embedded, and a quarter-point rise to 4% is their way of signalling they mean it.
But the people who will feel this most are not in Threadneedle Street. They are in Glasgow's tenements and new-build estates, on fixed-rate mortgages that are about to end, and in rented flats where landlords pass on their own higher costs.
A squeeze from every direction
The average two-year fixed mortgage is already around 6%. The Bank expects the energy price cap to jump from £1,720 to £2,150 in January. It expects food inflation to rise to 4.8% next year. And the Governor has made clear this is unlikely to be the last rate rise while the conflict in the Middle East continues.
Each of those pressures alone would be manageable for many families. Together, arriving in the same winter, they leave very little room. This week a charity warned that more than half a million Scots are at risk of needing a food bank in the coming year – before this rise was announced.
Interest rates can't fix an energy shock
There is a deeper problem. Raising rates is designed to cool demand. But this inflation is being driven by the price of energy, which is set by events thousands of miles away. Higher mortgage payments in Possilpark or Paisley will not reopen the Strait of Hormuz.
The Bank knows this, and it has been cautious. But it means the burden of fighting inflation falls on borrowers, while the cause sits beyond anyone's control in the UK.
What government can do
That is why the response cannot be left to the Bank alone. Holyrood's Budget next month is an opportunity to target help at those who need it most – through the Scottish child payment, support with energy costs and investment in advice services that help people manage debt before it spirals.
At Westminster, the question of how to protect households from energy price shocks – and how to make Britain less exposed to them in future – is no longer academic.
Plan now
For households, the advice is simple but important: if your fixed deal is ending, talk to your lender or a broker early; if you are struggling, seek free advice now rather than later. Scotland has good free services, from Citizens Advice to Money Advice Scotland.
The rate rise was always coming. What matters now is whether those with the power to soften the blow use it.