Higher interest rates signal return to a more normal economy

Morning View
Morning View

The days of rock bottom interest rates, and correspondingly low mortgage deals, are coming to an end.

The Bank of England decision makers have been sending out signals that interest rates are set to rise and lenders have responded to that.

This will not of course be welcomed by borrowers, but a small rise in rates is not an entirely bad thing when looked at from the perspective of society as a whole.

Savers have been badly hit by interest rates.

Many prudent pensioners who have built up modest nest eggs over a lifetime have seen the value of those savings fall in real terms as the rate of interest that they get fails even to keep pace with inflation.

There have even been parts of the western world where depositors have to pay to keep money in banks, a nightmarish prospect for small-scale savers.

It was right to slash interest rates during the financial crisis to avert catastrophe.

Inflation has stayed low, which means that the pain inflicted on savers has not been as bad as it might have been. Low inflation is one reason why rates have not risen before now.

But even so, savers have more than shouldered their part of the national burden.

Higher interest rates than the current historic low of 0.5 per cent will signal a return to a more normal economy and a more natural balance between borrower, lender and saver.

No-one wants a return to the horrendous interest rates experienced in the late 1980s, of over 15 per cent.

But the current extremely low rates risk fuelling an asset bubble. Property prices in the southeast of England are dangerously high, and we know well in Northern Ireland the misery that can flow from a house price crash.

In the meantime, borrowers who are in a position to fix mortgage rates now would be well advised to do so soon.