New cost of living support risks higher interest rates, warns think tank
UKPulse Consumer Desk
The Resolution Foundation warns that new, unfunded cost of living support could be counter-productive, potentially leading to higher interest rates and future inflation.
- Unfunded government borrowing for cost of living support could increase short-term interest rates.
- Temporary support measures may lead to higher inflation rates once they are removed.
- The Resolution Foundation suggests targeted support for lower-income households and relinking Local Housing Allowance to local rents.
New cost of living support measures, if not properly funded, risk being counter-productive, according to the Resolution Foundation. The think tank warns that increasing government borrowing to provide support could push up short-term interest rates, which would then affect mortgage rates for families.
The Resolution Foundation also highlighted that temporary support could lead to higher inflation rates in the future once the measures are removed. This could delay the point at which inflation returns to its target.
Ruth Curtice and James Smith of the Resolution Foundation suggest that effective support should be well-targeted. They propose providing assistance to households where no one earns more than £24,000 annually, and relinking Local Housing Allowance to local rents to help lower-income households.
Why this matters: The Chancellor faces a challenging Budget with high borrowing costs and rising prices, making the design of cost of living support crucial to avoid unintended negative economic consequences.
What this means for you: If the government increases borrowing for cost of living support, it could lead to higher mortgage rates for families.