Editorial: A generation has never known the ravages of inflation

​The rise in UK interest rates has been paused for the first time in more than a year.

The Bank of England left the base rate at 5.25% yesterday, after 14 consecutive rises from 0.1%. They made the decision after inflation fell last month from 6.8% to 6.7%.

A whole generation – roughly those under age 50 – have never known the ravages of inflation, that caused such harm to the British economy in the 1970s. It is hardly surprising, perhaps, that the importance of taming inflation is a lesson that was beginning to be forgotten.

The story of how the UK got to where it is today economically is a long and complex one, including factors such as the financial crash of 2008, the covid pandemic and the Ukraine war. But there have been fiscal hawks warning for some time about the inflationary perils of printing money and ultra low rates.

If inflation keep falling and interest rates stabilise, and fall a bit, then that is very good news.

Some economists, including Dr Esmond Birnie here in Northern Ireland and Larry Summers in America, have said that wage spirals could sustain inflation. It is to be hoped, however, that price rises soon decline to a level where almost all wages rise roughly in line with inflation, as been the situation for most of the last 40 years.

It is important though to remember why inflation is a bad thing. A central reason is that it rewards companies and individuals who – perhaps irresponsibly – over-borrow, by rapidly diminishing the real value of their excessive debt, and it punishes savers by wiping out the real value of their nest egg. The latter are typically prudent, hardworking people, often on modest incomes, who form the backbone of any society. They have tolerated ultra low interest rates for 15 years. A return to a more normal financial environment is long overdue.