ALL this discussion of what is going to happen with regard to Let us start with the state of our economy. Regular readers of this column will know that I am not, as yet, persuaded that a balanced recovery is under way. The estimate of
This has come during a period when real wages have been declining, so increases in consumption have been the result of enhanced borrowing rather than higher incomes. This is dangerous. Excessive household debt was a major cause of the crash of 2008. At the same time, exports continue to disappoint. Also, the growth in investment could be temporary, given that bank lending to the non- financial corporate sector actually declined by nearly pound(s)10 billion in Q1.
Meantime, inflation remains below the 2% target, while the Bank of
The basic interest rate set by the MPC has remained at 0.5% since 2009. Rates remain at historically low levels in all major economies. If
The problem is that there is another major issue around our economy which is causing anxiety and for which a rise in interest rates might just be seen as a simple solution. That issue is, of course, our housing market. Perhaps I should clarify: it is not "our" - as in
There is no way a rise in over-arching interest rates should be seen even as a partial solution to a housing bubble in one part of the
One sensible policy option for the housing problem, as suggested by
Building more houses is a longer-term solution, but ceasing to fan the flames through inappropriate subsidies would at least be a rational and targeted response.
In sum then, while inflation is below target and the inflation outlook remains benign, while we really need a pick-up in investment and while sustainable growth is not secure, now is not the time for a rate rise to be even considered.
Nevertheless, any sensible business or household should be starting to think what slightly higher rates might mean for them and considering what action by way of response might make sense. Rates cannot stay at such ultra-low levels indefinitely.
ALL this discussion of what is going to happen with regard to
Let us start with the state of our economy. Regular readers of this column will know that I am not, as yet, persuaded that a balanced recovery is under way. The estimate of