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Interest rates are poised to rise – which means we’ll find out how much of the recovery is real

13 June 2014

Mark Carney’s hefty hint that interest rates could rise sooner than markets anticipate is politically awkward but important, as until they do so, we shall have very little idea of how much of the recovery is based simply on cheap debt and how much of it is real. The car industry and house sales, for instance, benefit from ultra-low interest rates, and while they appear to be booming, it’s not clear how much of that boom is pushed by the bellows of cheap debt.

What’s more, the current situation punishes those who are doing exactly what the government wants them to do. When he announced the ‘savings revolution’ in this year’s Budget, George Osborne strangely neglected to mention that even though you can now drop £15,000 into an ISA in one year, you’re still better off paying off a mortgage than saving up a nest egg because of the poor returns that savings accounts offer in an era of low interest rates.

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As for the measures on housebuilding that George Osborne announced last night at the same dinner: they’re helpful in speeding up brownfield development, and politically they show that the Chancellor is heeding the main warning that he faces on the economy at the moment, which is that the housing market is overheating. But their flaw is that they are rather last minute and by focusing on brownfield development, the Chancellor is continuing to sidestep the big truth that all politicians will need to confront if they really want to build enough homes: brownfield alone will not answer demand. But as I’ve said before, this shows how much of the political consensus that the Chancellor needs will have to come from his own side: these measures are all he can get past Eric Pickles.

Osborne has told BBC News this afternoon that a rise in interest rates would show ‘we’re moving out of a period of economic crisis, that the British economy is growing, that jobs are being created and homes are being built’. He’ll be hoping it doesn’t expose anything less encouraging just before a general election.

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Show comments
  • obadiah_edomite

    whatever happens, goldman-sachs is sure to rake in more Loot.

  • swatnan

    Lets see the wholesale collapse of thousands of mortgages and levels of debt rise by people who took on more than they could chew. This time they won’t that that old excuse of PIP to fall back on.

  • Mynydd

    Mr Cameron/Osborne still do not have a AAA rating so how come every thing in the garden is rosey

  • Frank

    This is not a “recovery”. It is not hard to see, or define, a “recovery”, it is when your exports equal, or are larger, than your imports. What we have is a bubble based on QE, cheap debt and foreign funny-money looking for a home.
    Is it any surprise that most people are not queuing up to vote tory? NB I am not saying that Labour would have done any better, but I did slightly hope that the Tories would manage to avoid stuffing up the country yet again! Silly me, just one look at George Osborne and you know that if it walks like a duck, talks like a duck, swims like a duck, then it is probably a …….!

  • MirthaTidville

    The Government tried to artifically manipulate the markets (should have listened to Maggie) with their silly Funding for Lending. The object being to get people thinking well of Dave and vote Tory..What has happened is that savers have been raped, and many people who previously were able to stay out of the benefits trap, due to livable interest rates, are now in it permanently and will never escape. Interest rates need to climb fast and quickly and let the markets decide. There are many of us sick to the back teeth of subsidising mortgages

  • Conway

    If you have savings and no debt (in my view, a sensible way to live) you have been well and truly stuffed.

  • Conway

    brownfield alone will not answer demand” Then for the sake of the countryside, we had better reduce demand, hadn’t we?

  • you_kid

    How are the banks balance sheets looking now that they raised their book values of hard assets artificially? Ready to pay yourself interest on all that good work?
    You could not make it up.

    • the viceroy’s gin

      …so it’s artificial, sorta like all of your army of sockpuppets then, lad?

      • you_kid

        yes, artificial – all the did is add 20% more e numbers.

        • the viceroy’s gin

          …you’ve added at least 20% more sockpuppets, lad, so you seem to be keeping right up.

  • Kitty MLB

    On a positive note the reason why interest rates might rise
    earlier then expected is that the economy is growing and
    that unemployment is falling faster then expected.

  • Lucy Sky Diamonds

    Oil prices rising……

    • Alexsandr

      get fracking.

  • Hello

    “But as I’ve said before, this shows how much of the political consensus that the Chancellor needs will have to come from his own side: these measures are all he can get past Eric Pickles”

    We shouldn’t neglect to mention Theresa May’s part in all this as well. If it wasn’t for the screw-up at the passport office, more people would be leaving the country, but as it is we’re just seeing demand for houses rocket, pushing prices up and inflating a dangerous bubble. It has May’s fingerprints all over it.

    • Alexsandr

      the passport office is a non story. It only affects those stupid enough to leave applying for their passport to a few weeks before they travel.

      • Hello

        No, Alexsandr, it’s not a non story. It’s a “crisis”.

        • fundamentallyflawed

          A crisis is your home being bombed. Your family beheaded. The risk of being sniped crossing the road. Its not waiting for your passport because you couldn’t prepare in advance before you dash abroad for the sun.

          • Kitty MLB

            Very well said. And we wonder who caused the
            bigger crisis, don’t ask Labour the quick to
            blame party.

          • Hello

            Phew! I was worried some people might think I was being sarcastic, but clearly you’ve understood.

  • Alexsandr

    once again we are peddled the lie there is a problem with housing. Its just in the south east, and that’s caused by immigration. You cant discuss housing without discussing immigration.
    outside the SE the housing market is neither booming or depressed.

    • Last Man Standing

      Absolutely. Its not a housing problem its an immigration problem. I an sure Hardman knows that but she wont say it.

      • telemachus

        Without the migrants there would not be enough wealth for even the house building that actually is going on

        • Inverted Meniscus

          So why don’t we get a Billion immigrants tomorrow. The everybody would become immeasurably rich, we would all live in mansions and have gilt edged pensions. We could also raise the minimum wage to £1,000 an hour, no, £10,000 an hour. Do you ever st being ridiculous?

      • Inverted Meniscus

        Well she is a leftist stooge after all.

    • Gary Wintle

      Houses are not being built because it enables foreign Arabs and Russians, as well as Baby Boomers to inflate house prices and thus increase their wealth at the expense of everyone else.

      High house prices enables people to get rich without doing any work, its the ultimate form of sponging.

  • DaveTheRave

    1. Interest rates are poised to rise.
    2. Many many people with mortgages have not had a pay rise in years
    3. Prices of virtually everything have continued to rise, and petrol likely to go up with Iraq exploding again.

    Which all means…

    1. There is no real, sustained recovery, except the one the City (and its friends) can congratulate itself about.
    2. More will default on their mortgages, causing the housing market to dip (which is what they want) in most of the country.
    3. London house prices will continue to rise.

    Same old, same old.
    Give us change.

    • fundamentallyflawed

      I recently purchased my first house – luckily I live in the North and I A) took a mortgage I could afford B) Fixed for 7 years. Anyone not on a fixed rate deal will see their income drop drastically as even small changes in interest rates affect their mortgage payments. I am waiting for the flood of claims who were “missold” mortgages because they weren’t aware their cost could rise as interest rates rise

  • Mike Barnes

    “Osborne has told BBC News this afternoon that a rise in interest rates would show ‘we’re moving out of a period of economic crisis, that the British economy is growing, that jobs are being created and homes are being built.”

    But I thought low interest rates were proof the plan was working, markets had faith in the government blah blah… oh I see it’s one of those things that can be used to mean whatever you want it to mean.

    • manonthebus

      Well, I imagine that you have to differentiate between the artificially low BoE Base Rate and the rate at which foreigners will lend us money.

      • Chris Morriss

        Well yes, that does of course show what the base rate should be!

    • Alexsandr

      maybe if the banks cut their spread a little then both savers and borrowers would benefit.

      • itdoesntaddup

        Given the amount of assets the banks still need to write off there will be no reduction in margin any time soon.

        • Alexsandr

          then shun the banks and use peer to peer. only 1-2% spread there

    • Chris Morriss

      Low interest rate were a crude ‘sticking plaster’ to prevent too much bleeding. The wound may not be fully healed yet but the bleeding stopped a long time ago. The sticking plaster should have been removed years ago. Given the state of the economy, the base rate should be around 2 to 3%.

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