Worries over inflation have seen the Bank of England raise the interest rate to 5.75 per cent, a move that is likely to hit PC retailers hard.
The rise, the fifth in the past year, has seen retail in general brace itself for tough times as more and more mortgage holders find themselves with increasingly less and less disposable income.
The Monetary Policy Committee (MPC) of the Bank of England (BoE) is worried about increasing inflation and has said that spending needs to slow. It is worried that the past increases have had little effect and need to raise the rate again in order to apply the brakes on consumer spending a little harder in order to curtail inflation.
The rate rise is aimed at service companies who the BoE see as having lost none of their "pricing-power". Indeed, official figures show that prices increased in that sector last month.
However, those most likely to be effected by the BoE’s move are not the service companies the move is aimed at curtailing the cost of to consumers. Among those in the front line are high-value retailers such as those involved in selling PCs and other high-tech products who rely on large disposable incomes for customers to be able to afford to shop there.
Other’s, suggesting that yesterday’s rate rise will have little or no impact on inflation or spending habits point to the fact that the recent increases have had no effect on over two million households, nearly 20 per cent of all mortgages in the UK. They say that it is down to the fact that they are still on fixed rate schemes and so have not seen their repayments increase for the past two or three years. Indeed they stress that until the vast majority of mortgage holders re-mortgage at a high rate, any further rises will be pointless and more than likely damage retail more than inflation would.
Among those worried is Chancellor Alistair Darling. More and more people have been pointing towards the fact that when those households begin to come off fixed rates later this year, many will see their repayments go up significantly. Current estimates suggest that those coming off fixed rates mortgages of £100,000 will face increases of around £100 per month.
The worry for retailers is what effect the loss of £230 million a month in disposable income would have on the High Street.
The British Retail Consortium’s director general Keith Hawkins told the press: "This could well be an increase too far."
"The effects of the recent, quick-fire series of rate rises are now beginning to be felt. It’s clear there is more of an impact, which has yet to feed through to sales and consumer confidence."
"With disposable income growth at record lows, saving slumping and customers struggling to meet rising household bills, the squeeze is tightening," added Hawkins.
David Kearn, economic adviser to the British Chambers of Commerce also expressed concern over yesterday’s decision by the Bank of England.
"We are very concerned over the long-term effects on British business of the increasingly aggressive policy stance that appears to be emerging," he said.
"Following last month’s very narrow MPC vote, and the governor’s support for immediate tightening, the markets have widely predicted today’s move. But we question whether the risks and uncertainties justify aggressive and persistent interest rate increases at the present time," added Kearn.