Leeds Policy Institutes Head of Research Hubert Kucharski has written for the IEA explaining how Britain's current 'cost of living crisis' will morph into an equally harmful 'cost of credit' as higher interest rates trickle through the economy.

Hubert wrote:

"With inflation expectations on a downward trajectory, the Bank of England – and the British public for that matter – are hoping for this cost of living crisis to subside. We should not, however, get our hopes up for a quick economic revival.

"Today’s ’cost-of-living crisis’ is like a hydra. Once subdued it will only be accompanied by an equally malevolent ‘cost of credit crisis’, courtesy of real interest rates carrying over into the real economy.

"With mortgage repossessions rising because of tenants being unable to meet rising rent payments, we will likely see the housing market becoming dominated by larger banks that can afford to offer forbearance. For financial markets, this may create two outcomes: increasing concentration ratios and better-fixed rate terms akin to those of the US.

"Looking into the real economy, the deterioration of disposable incomes will inevitably lead to diminished savings and with this, the UK will be increasingly prone to economic shocks as households – especially the poorest amongst us – will have an even smaller safety net.

"The cost of credit crisis that will mark the end of this year and the turn of the next may be a quiet one. Nevertheless, we must pay attention to it, as it risks leaving the British economy in an increasingly precarious position."

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