Morning View: Rate rise always likely as age of cheap debt ends

Yesterday, the Bank of England announced a rise in interest rates from 2.25% to 3%. This is the highest they have been since 2008.For borrowers, and particularly those with mortgages, it is an unwelcome development that means their monthly outgoings will increase. At the same time, the rise should benefit savers.

In modern times, savings accounts have too often produced almost no return.

From the bank’s perspective, the interest rate hike is necessary because inflation continues to go up.

If it costs more to borrow money, people tend to spend less, which slows down the economy and prevents price rises.

There is a strong argument that the cost of borrowing has been too low for too long. Many critics say that the world economy was pumped up artificially on debt and a correction was inevitable.

Nations once made money by manufacturing things and adding value, but the new trend is to fuel economic growth through rising asset prices and borrowing.

Increasingly, there are signs that the era of easy debt is coming to an end and it will be a difficult transition, without a doubt.

In theory, rising rates should lower spending and arrest inflation but there is a real risk that they could also cause recession.

The new government, under Rishi Sunak, takes a different economic approach to its predecessor under Liz Truss. She thought the UK should spend and cut taxes to boost growth, but Mr Sunak believes we need to balance the budget.

This is a complicated and contentious subject, but it does seem that an interest rate rise was overdue.

There should now be a concerted effort by the government to ensure it is passed on to savers and not just heaped on to borrowers.