Rate rise will inflict pain but ultra low interest causes problems

News Letter editorial
News Letter editorial
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The decision to raise interest rates by the Bank of England was expected to be a finely balanced one, but the bank did not think so in the end.

Its monetary policy committed voted unanimously to make the change from 0.5% to 0.75 yesterday.

There are winners and losers in any such decision, and the chief executive of Retail NI Glyn Roberts said it was “not a welcome development given how weak consumer spending is at the present time”.

It is presumably the fact that the bank is mindful of such pain that it has taken so long to raise rates - only the second rise since 2009, the first having happened last November.

But while the agony on the high street is a cause for concern for almost everyone, because it calls into question the future of that sort of retail in the digital age, there were some very sound reasons for raising rates.

Almost permanently low interest rates have caused asset bubbles, which have greatly increased the wealth of the richest people in society, and so increased inequality.

They have greatly increased the price of houses, which has threatened to shut a younger generation out of home ownership. The only reason this is less of a problem in Northern Ireland than England is because we had a particularly severe house price crash, between 2008 and 2013.

If anyone knows the problem with asset price booms, it is this Province.

Horrifyingly, some people who were young when they bought their first house with huge debts in 2007 and are now approaching middle age find themselves still in negative equity.

Normal interest rates will make a repeat boom less likely.

But one of the most important groups of beneficiaries is savers, who have withstood a decade of ultra low interest returns so that their money does not even keep pace with inflation. Such hard working, responsible people are the backbone of society and deserve the small relief they got yesterday.