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U.K. banks raising mortgage interest rates…cause inflation hasn’t fallen as much as expected. Can anyone do an ELI5 as to why? (lemm.ee)

submitted 6 months ago by [email protected] to c/[email protected]

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As the title says, numerous banks in the U.K., maybe across the world, are raising interest rates on mortgages, and the given reason is cause inflation hasn’t fallen as much as expected. Can anyone give me a basic inflation, other than greed, as to why they’d do this?

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[–] [email protected] 1 points 6 months ago

new money enters the economy from government loans to banks, banks then lend that money on to consumers and businesses. The interest rate charge is effectively the price, by raising the price they’re hoping to decrease the amount of new money entering the economy, which is thought by many to be the main cause of inflation.

Normally new loans/investment creates growth in the economy, so there are more goods and services for that money to be spent on, so prices don’t go up, or at least go up more slowly than new money is entering the economy. But lately, despite new money entering the economy, supply for goods and services has not grown quickly enough (or even shrunk), so more money is competing for the fixed amount of stuff, so prices have gone up (inflation). They only really have one tool they’re willing to use to address the issue, how “expensive”(interest rates) new loans are.