Editorial: Uproar at rise in interest rate yet it was long too low

​​It is a sign of the dysfunctional nature of western economies that yesterday’s interest rate rise to 5.25% was seen as a moment of cruelty.

There is no doubt that the further quarter point rise in UK rates will cause misery for some homeowners. But such a borrowing rate would have been seen as very low when Tony Blair came to power only a generation ago.

How we got here is a long story rooted in large part in a western culture of borrow, borrow, borrow. Such a mindset in 2005 and 2006 led to banks on both sides of the Atlantic lending far too much money for private property, often to people who were never likely to be able to sustain such a debt, ultimately leading to a huge house price crash, the near collapse of the banking system and a global recession.

Greed was at the heart of it, and while bankers played a starring role, so did the wider public delusion that if everyone’s house soared in value then everyone could win the lottery. Among the people who lost out most of all was young people and those with bad credit ratings who were led to believe that taking on massive debt was one-way bet to housing prosperity. It is wickedness that some such people remain in negative equity almost two decades later – if, that is, they are still alive (a fair proportion of the population dies over such a period) and if they did not go bust. We should be aware of this above all in Northern Ireland, where we had one of the most extreme boom and busts anywhere on Earth.

The solution to the global crash was to slash interest rates, and keep them down. This caused great unfairness. It meant that asset prices soared, making the rich even richer and shutting the poor out of home ownership. It was unfair on prudent savers, whose hard earned nest eggs have fallen far below inflation, to bail our irresponsible borrowing. A slow return to rate normality is a good thing.