SO, there we have it. Following months of speculation around when interest rates would go up, the Bank of England finally raised the base level by 0.25 percentage points and – wait for it - the UK now has its highest rate in almost a decade.
We should put things into perspective, however. In autumn 1989 homeowners faced a base rate of 15 per cent; yesterday’s hike takes the current level to 0.75 per cent, which is still very low in anybody’s book.
But that doesn’t mean the move won’t have an impact – or that it was sensible.
The Bank’s Governor, Mark Carney, had been dubbed an “unreliable boyfriend” over his perceived lack of clarity about the timing of rises; at least he cannot now be accused of prolonging that uncertainty.
What’s less clear is whether even this modest rise will cause unnecessary pain and damage to fragile businesses and homeowners at the worst possible moment.
There are always two sides to any rates hike, of course. On the one hand, savers have seen the value of their savings and investments plummet over the last 10 years, with many retirements ruined by the record low interest rate levels deemed necessary since the banking crisis. Such a small increase will make little difference to dividends, however, and is not even certain to be passed on.
On the other hand, struggling businesses and those on variable mortgage rates could be sent over the edge by even a modest rise, especially while economic growth remains so stubbornly sluggish. The Scottish economy is particularly fragile, as pointed out yesterday by the Scottish Chambers of Commerce and the respected Fraser of Allander Institute.
There has been much talk of rising inflation and record employment in recent weeks, but the simple fact is that wages remain flat, which means many households are still feeling the pinch. Increased mortgage payments for more than three million of them will put even more pressure on wage packets and could ultimately discourage consumer spending. This in turn risks hitting the wider economy, not least the struggling high street.
An expected rates rise back in May did not happen due to economic fragility, and yet nothing has improved since then. Indeed, the prospect of a no deal Brexit arguably makes the current situation even worse. So why pull the trigger on interest rates now?
Mr Carney has been warning for some years that as the economy recovers from the 2008 crisis rates will gradually have to go on an upward trajectory and find a “new normal”. But the current Brexit chaos makes normality a pipe dream, and that means even this small rise could prove risky. Rather than unreliable, Mr Carney may yet live to be called unwise.
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