Interest Rates

Lord Pitt-Watson Excerpts

Tuesday 10th November 2026 Lords Chamber

[Baroness Neville-Rolfe]

To ask His Majesty’s Government what assessment they have made of the recent rise in interest rates and the effect of this on economic growth, inflation and on their borrowing costs.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

This is an important Question. Last week, the independent Monetary Policy Committee increased the Bank rate in response to the high inflation that was driven by the conflict in the Middle East. I should point out, however, that the Office for Budget Responsibility noted that higher rates would weigh on activity and increased borrowing costs, contributing, in the projection that we saw with the Budget, to the slowing of growth next year. Of course, higher rates should reduce inflationary pressure, which is itself essential for longer-term growth.

[Baroness Neville-Rolfe (Con)]

What does the Minister say to the millions of people whose mortgages will have become more expensive as a result of this rise and, more than likely, further rises in UK interest rates?

[Lord Pitt-Watson (Lab)]

It is a difficult question. We are living in uncertain times and things are difficult for people on mortgages. It will be different depending on the type of mortgage you have: is it a fixed-rate mortgage or a variable-rate mortgage? If it is a fixed-rate mortgage, you might be very pleased, when your mortgage is renewed, that we are getting medium-term inflation down, but I understand that it is more difficult for interest-only mortgages. I finish by saying that the Bank rate in May 2022 was 1%, but by August 2023 it was 5.25%—a 4.25 percentage point increase. I am sure that people who were on the Front Bench in those days will also be able to help answer the noble Baroness’s question.

[Lord Macpherson of Earl’s Court (CB)]

My Lords, I declare my interest as the chairman of a small bank. Does the Minister agree that it is the market as much as the Bank of England which determines the interest rates which people and businesses pay? Does he therefore agree that the 40 basis points reduction in 10-year gilt yields is probably more significant over the last month than the 25 basis point increase in the Bank rate? Can he reaffirm the Government’s commitment to the fiscal rules in particular and fiscal credibility in general?

[Lord Pitt-Watson (Lab)]

The answer is yes to those questions. How it works will be complicated for different people, depending on the terms they got from the banks. We have an absolute commitment to the fiscal rules.

[Baroness Kramer (LD)]

My Lords, the OBR has forecast that, by 2031, the Government’s payment on annual debt interest will rise to a staggering £160 billion. Part of the reason for that very high number is that the Government remain, through the Treasury and the Debt Management Office, absolutely addicted to issuing index-linked bonds, which pay not a fixed coupon but a coupon based on the level of inflation and, even worse, on RPI. No other G7 country does this general idiocy and the pension industry, which once benefited from such bonds, no longer uses them. Can the Minister please explain why the Treasury and the Debt Management Office, which is part of the Treasury, continue with this addiction?

[Lord Pitt-Watson (Lab)]

I answered a similar question in the past, maybe as a Written Question, and noted that the issuance of index-linked bonds was indeed falling, but I would be more than happy to write further to the noble Baroness if she thought that was critical.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, since interest rates under John Major were at 15% and under Margaret Thatcher at 17%, are the Tories the best people to advise the Government on this matter?

[Lord Pitt-Watson (Lab)]

How can I answer that? You may say that; I couldn’t possibly comment. I made the point that the Bank rate rose between May 2022 and August 2023 by 4.25 percentage points. If I am doing my arithmetic right, that is 17 times what we have seen in the past week.

[Lord Redwood (Con)]

Why was the Bank of England recently given permission by the Chancellor not to sell £120 billion of long bonds that it was planning to sell and why is it now seeking permission to sell all the remaining bonds to the Treasury?

[Lord Pitt-Watson (Lab)]

This was the decision of the independent Bank of England, just as the decision on the Bank rate is an independent decision of the Bank of England. I am not sure I can go beyond that in commenting.

[Lord Londesborough (CB)]

My Lords, put bluntly, for our debt to decline meaningfully, our GDP growth rates need to exceed the interest rates we pay on our borrowing. Does the Minister agree that this requires an explicit and bold growth strategy? If so, where did this feature in last month’s Budget?

[Lord Pitt-Watson (Lab)]

I go to the view of Kristalina Georgieva, the managing director of the IMF, and quote her on what she thinks about the UK and its management of its debt:

“The UK is actually one country where action to reduce debt and deficit has been taken decisively and we see the UK in that sense enjoying a bit of a better growth prospect”.

[Lord Sikka (Lab)]

My Lords, hiking the interest rate is actually a wrong policy. The current level of inflation is caused by profiteering and supply chain constraints, not by excessive cash sloshing around in households. Some 25.3 million people already live below the minimum income standard. The higher interest rate will force households, businesses and government to hand over wealth to banks, boosting their profits without any additional investment. The right policy should be to curb profiteering. Does the Minister agree? If so, what will he do?

[Lord Pitt-Watson (Lab)]

The decision on interest rates is for the independent Monetary Policy Committee, which is part of the Bank of England. If the noble Lord would like to write to it, or write to it through me, I would be very happy to pass his comments on.

[Lord Clarke of Nottingham (Con)]

Will the Government not accept that they face a serious debt crisis, which, admittedly, they inherited? We now have public debt at almost 100% of GDP—more than 90%—and a colossal amount of the tax that the Government collect has to be paid on an ever-mounting level of interest. Will the Government stop saying that they will stick to the fiscal rules, which means that they will stop borrowing in a few years’ time, and take some urgent action to win back the confidence of the market by chasing obvious targets, such as cutting the growth of the welfare budget and scrapping the triple lock to start with?

[Lord Pitt-Watson (Lab)]

I agree with many of the noble Lord’s comments. Our debt is way too high and the interest we are paying on the burden of that is very serious. How we go about righting that—as he says, there is a long history, and it is unhelpful to go into it—is a matter of judgment and balance, and it needs to be done over time. I go back to the comments of the chief economist of the IMF: of all the countries it is reviewing, she picks the UK out as the one that, basically, stands out. I hear that there may be some moves a little this way and some a little that way, but I hope that the House will acknowledge the seriousness with which this issue is being treated.

[Baroness Altmann (Non-Afl)]

My Lords, what analysis have the Government made of the impact of monetary policy on the fiscal deficit and whether there has been too much conflict between the Bank of England’s policy, which is anti-growth by pushing up interest rates, and the requirements of the economy to boost growth?

[Lord Pitt-Watson (Lab)]

This is an interesting economic argument, but the institutional structure in the UK is that we have an independent Bank of England. That is seen as a strength for the UK in controlling inflation and those other economic effects, which in turn underpins growth for the future. I think that, in general, there is cross-party agreement that that is a good way of doing things.