Anthony Hilton: A debate on a ‘normal’ interest rate? It’s bound to be inconclusive
Saturday 22 February 2014
Monday evening in the Mansion House for the annual City debate, where the main speakers were Chris Huhne and John Redwood.
With more than a touch of humour, the organisers had seated Mr Huhne to the right of Angela Knight, the former Tory minister and chair for the evening. Even harder to imagine was John Redwood, seated to her left.
The motion was to discuss whether it was possible for interest rates to return to normal levels without bringing on another financial crisis. It turned into an argument about whether higher interest rates would lead to massive mortgage arrears and the wholesale collapse of small businesses, with Mr Huhne suggesting it might and Mr Redwood not that bothered if it did.
More informative than the debate, however, was an email I received the next day from a fellow guest who questioned in a way the debaters did not just what we mean by a “normal” level for interest rates.
If you look at the 50-year moving average for the Victorian era the real rate of interest comes out at around 2 per cent, he said. That was also the rate throughout the early 20th century. Since then it has tended to be even lower, albeit as of now it is back close to the 2 per cent mark.
My fellow guest also pointed out there is no such thing as stability any more, which raises a further question of what “normal” means. Even a 50-year average (which is designed to remove the effect of short-term fluctuations) shows rates move in long-run cycles. Shorter-term averages show these are frequent and dramatic. In the past 100 years the 10-year average for interest rates has moved from a low of minus 4 per cent to 9 per cent in three distinct cycles.
It is true that official interest rates are artificially low at the moment with the Bank of England determinedly printing money to keep them that way. It is also likely that official rates will rise – possibly in a year’s time according to one of the Monetary Policy Committee members this week. But the reality is that most people who need money are already paying far more than the official rates would imply. Higher rates might well cause a spate of foreclosures and a fall in house prices. But it is emotion rather than evidence which suggests the problem is so widespread that it would spark another financial crisis.
- 1 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 2 Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
- 3 Make your voice heard: Sign The Independent's petition to welcome refugees
- 4 Refugee crisis: Aylan's life was full of fear - in death, he is part of 'humanity washed ashore'
- 5 German police forced to ask public to stop bringing donations for refugees arriving by train
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
Britain to take more refugees as Cameron bows to pressure after more than 100,000 back our campaign
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...