Borrowing data points to economic unease ahead of March 29

The British economy has been displaying contradictory indications in recent months.
News Letter editorialNews Letter editorial
News Letter editorial

Employment is doing well, for example, and growth is at a reasonable pace, but other areas are struggling, including aspects of retail.

It is a similar picture in Northern Ireland.

But both here and in Great Britain there have been some interesting canaries in the coal mine.

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House prices in southeast England, the powerhouse of the UK, have been in modest decline (sharper declines in prime London). Expensive houses in Northern Ireland, those over £500,000 are moving very slowly.

Now there is UK-wide data that shows that the annual growth in consumers’ non-mortgage borrowing slowed to a four-year low in the run-up to Christmas.

The Bank of England data showed that people are also increasing their easy access savings.

The figures suggest a mood of nervousness among the public as to the economic outlook.

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This is probably largely, if not entirely, due to the uncertainty around Brexit. It is also likely to be related to the modest rise in interest rates last year.

An increase in savings is no bad thing: indebtedness in Britain is high, particularly public debt. This is one of the unwelcome side products of the era of super low interest rates.

If rates are very low, it encourages people to borrow more, and reduces the return they get on savings, typically a negative return after tax and inflation is taken into account.

It also helps unproductive and inefficient companies to survive, which helps keep employment rates buoyant but comes with its own set of problems.

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For all these reasons, a minor rise in interest rates would be no bad thing to help normalise the economy. But it will not happen ahead of March 29, and nor should it, given the political confusion ahead of the UK’s scheduled departure from the EU.