Tuesday 4th February

For as long as I can remember the Chancellor of the Excheqeur controlled interest rates, and with the advice of bankers and civil servants, raised or lowered it as he (it was always a he) saw fit.  It was a weapon, a monetary weapon to control debt, to control inflation, to stop disturbing trends getting out of hand.  One of the first things Gordon Brown did, and it was hailed as brilliant at the time, was to give the responsibility of setting Interest Rates to the Bank of England.  A monetary committee was set up and their main aim was to control inflation.

However, and there is always a however isn’t there; the financial crisis intervened and the Bank of England, with or without political pressure reduced interest rates to a ludicrously low and never before tried rate of half a percent.  The trouble with interest rates is that they are international and if other countries lower their rates you almost have to follow.  There was a race to the bottom, because everyone wanted their currency to slip and for exports to be cheaper and so a recovery more  possible.  By the way the Bank’s low interest rate has not controlled either inflation or the value of the pound.  And now that the thing has been stuck at this low rate for nearly four years it is almost inconceivable that it will rise.

But it will.  And not really because the Bank think it is a good idea, but international pressure and others raising their rates will force its hand.  In the meantime those with mortgages have had an easy time and we are experiencing a housing boom again where people are borrowing more.  Well interest rates are so low who can blame them?  And many companies are only surviving because their bank loan interest is so low too.  Whenever, and the ever-political Bank is indicating it will not be before the next election, interest rates do rise the increased debt we are happily taking on will become the next major problem and may just plunge us back into recession.  Happy days ahead.