We need a feminist approach to tackling inflation

In response to the Bank of England’s decision to maintain Bank Rate at 5.25%, the Women’s Budget Group, the UK’s leading feminist economics think tank, says high interest rates will continue to hurt millions of women struggling with mortgage payments and debts.

Ignacia Pinto, Research and Policy Officer said,

“Although the Bank of England did not increase interest rates further, the fourteen previous increases are already hurting many people, especially low-income women, without addressing the root causes of inflation. If we are to tackle the cost-of-living crisis, we need better coordination between the Bank of England and the UK Government to stop excessive profits and support those worst affected.”

“High interest rates risk turning the clock back on gender equality. Typically women have less bargaining power to raise wages in a tightening labour market caused by interest rate rises, and they are also more likely to be in debt to cover costs of everyday living, which rises in interest rates will worsen.”

“Wages going up has been a reason the Bank has given to keep interest rates high. Average wages are now growing faster than inflation and this is good news for millions of workers who have seen their living standards dip in the last 18 months. But the headline figure masks significant differences within our fragmented labour market. Wages in sectors like finance and business services (9.5%) and manufacturing (8.1%) are rising higher than in the public sector (6.6%), with women more likely to be in the group with lower rises, still below cost-of-living increases.”[1]

“On top of this, women have 8.8% less in savings than men (£3,000 compared to £3,250)^[2], so they benefit less from higher interest rates. The combination of women having less bargaining power in the labour market, fewer savings and more debt, means the Bank of England risks increasing gender inequality by keeping interest rates high.”

“High rates of inflation have resulted in a cost-of-living crisis that harms the well-being of the majority of women, but keeping interest rates high is not a good way to bring inflation down in the current scenario. The BoE’s own research has now found that many companies are raising their profit margins and this is contributing to inflation. However, the Bank’s focus continues to be on trying to reduce inflation through the blunt tool of interest rates, and the higher rates we have now will continue to reduce investment and wages.

What the Bank of England and the UK Government should be doing instead

“The presumption that the Bank of England’s interventions are ‘market neutral’ masks the equalities impacts of those interventions, which are far from neutral. A more effective coordination between monetary and fiscal policies is key to bringing inflation down without impacting gender equality. Current inflation is not the result of too much demand created by unreasonable wages and government borrowing, but of shortages of supply and increased profits from big companies.”

“The BoE should talk to government about how to effectively challenge companies that are not going to pass on the benefit of falling energy costs in the form of price cuts. This could include putting price controls in place in the energy and rental market, as countries like Spain have done, and introducing windfall taxes on banks and strengthening existing taxes on energy producers.[4] Revenues from these could finance cost-of-living support to the most vulnerable and investment in our public services that would benefit all.”

“In the medium run, we need a coordinated effort between the Bank of England and the UK Government not only to boost investment in the green economy but also in the care economy, by for example exploring the potential of buying ‘social infrastructure’ bonds directly from the Treasury.”

“As with any other public body, the Bank of England is bound by the Public Sector Equality Duty to have due regard to equality, including gender equality, in its decisions. It should therefore start routinely collecting data and information to assess the impact of its decisions on gender equality.”

 

For more information or further comment, contact

erin.mansell@wbg.org.uk / press@wbg.org.uk / 07799116631

 

About the Women’s Budget Group

The UK Women’s Budget Group (WBG) is the UK’s leading feminist economics think tank, providing evidence and analysis on women’s economic position and proposing policy alternatives for a gender-equal economy. We act as a link between academia, the women’s voluntary sector and progressive economic think tanks.

 

References

[1] ONS (2023) EARN02: Average weekly earnings by sector. 11 July 2023, https://ifs.org.uk/articles/pay-growth-londons-top-earners-has-driven-geographical-inequality-mean-earnings

[2] Source: ONS, Wealth and Assets Survey, Round 7. Median savings for those with >0 savings.

[3] ONS (2022) Distribution of individual total wealth by characteristic in Great Britain: April 2018 to March 2020

[4] New Economy Brief (July 2023) Why is Spanish Inflation so Low?