Bank rate hike pushes growth harder

If you put more money into the pockets of consumers and companies, the economy will grow, as per the Chancellor and Prime Minister's guiding star.

The tax cuts make economic growth harder to achieve, according to the City of London insiders.

The Bank of England is under pressure to raise interest rates faster than originally contemplated due to the unexpectedly large 45 billion cut to existing and proposed tax rates.

Markets were expecting the Bank's baseline interest rates to rise from 2.25% to 4% next year. The bank rate is expected to hit 6% in May of next year, after Friday's not-so mini-budget.

Companies don't get to borrow at that rate, but they pay extra on top for the perceived risk they won't be able to pay back.

If you were to borrow 5 years in the market today, Marks and Spencer would have to pay 10% or more.

Very few companies are going to borrow money to invest in their business - build a factory, hire more people, expand research and development - at rates that are high.

They are likely to try and reduce the debt they already have by not renewing loans as they come to the end of their term, reducing their spending and investment power.

One bond trader said that the additional risk now associated with the UK means that UK companies will be charged an extra premium for their borrowing compared to last week, which is counter to the government's growth agenda. It may be that the markets will settle down, look at the government's other reforms and cuts to regulation in the coming weeks and months, and decide how the government's plan for growth can work.

As things stand, the British and the companies that call it home have lost credibility in the eyes of lenders.

The increased borrowing costs by a margin that is more than offsets the potential boost to the incomes of consumers and businesses because of the cuts to current income and proposed corporation tax rates.