Finally, interest rates are back on their way up. The Bank of England’s rise today – from 0.25 per cent to 0.5 per cent – is the first rise for 10 years and long overdue. Ever since the Brexit vote, there has been much hyperbole about the underperformance of the UK economy when in fact employment has soared to ever-greater highs and economic growth has steadily continued. There is no need for emergency interest rates, and hasn’t been for quite some time. There is pretty much no spare capacity left in the economy, we are at any sensible person’s definition of full employment.
Mark Carney had allowed his Brexit gloom to cloud his judgment on this, issuing more QE when it wasn’t needed. So the Bank of England found a fresh excuse to dole out dangerously underpriced credit – always an easy way out of a quick fix today, but storing up problems tomorrow. Slowly, his position became impossible to sustain. With inflation at about 3pc, perhaps nudging a bit higher, and stronger-than-expected economic growth there simply isn’t any economic evidence left to justify rates at an all-time low and keep on punishing savers.
Carney was at it again today, saying the success of Brexit talks would influence future rate decisions. Which gives him more chances to ignore underlying data if he wants to keep rates at emergency rates. Another rate rise, maybe two, will be needed in the next 12 months if things are to climb back to normality.