It is inevitable that the Bank of England will raise interest rates sooner rather than later

We still need a recovery that relies less on consumption of imports and soaring property values


The next rise in interest rates is a little like the return of a defeated England team from a World Cup: everyone knows it is inevitable, and will happen sooner rather than later, but it is difficult to be precise about the timing. The talk is now of rates rising by the end of the year, where once next spring was thought likely. The talk is probably right.

Happily, whatever happens is very likely to be gradual – “baby steps”, as some in the Bank of England term it. There is certainly no need for a dramatic “show of strength” to whip rapidly rising prices back. The inflation figures last week were surprisingly good. Unlike in much of the eurozone, subdued inflation in this country does not threaten a true deflation. Instead, we seem to be going through an unfamiliar phase of falling inflation (pointing to a rate cut) and falling unemployment (pointing to a rate rise). It is a little bewildering.

The danger with changing rates is that the authorities leave things too long before they act. When that happens, the subsequent action needs to be that much more violent to have the same effect. As things have turned out, our long-delayed recovery is developing quite strongly, and has contributed to a property bubble in London. Strange to say, it is the type of economic recovery that we can do without; driven by renewed consumer spending and another binge in the housing market, it resembles a sort of “boomlet” version of the bubble economy that developed in the 2000s.

That type of growth is not to be encouraged, as it has nothing to do with the “rebalancing” of the economy that everyone agrees we should be working towards. The past 12 months or so have been a little reminiscent of the candy floss economy that preceded the Great Recession of 2008; plenty of new German cars and dinner-party chat about the price of a flat in up-and-coming bits of the capital. We still need a recovery that relies less on consumption of imports and soaring property values, and more on real jobs from manufacturing, technology and exports.

Largely unnoticed, the strength of sterling has also been doing some of the Bank’s work for it. As it crested the $1.70 mark earlier in the week, with some excited talk of the return of a $2 pound, it had something of the same dampening effect as a rise in rates would have, unfortunately focusing on our exports.

Other things being equal, as the Bank’s economists might say, that would make a rise in rates less urgent, and it does; but a small, almost symbolic marker of a change in attitude might not make much material difference in any case. Lest we forget, the function of interest rates is to keep inflation on target, and a marginal change should not mean the Bank “overdoes it” by pushing inflation too low, if we look at things more broadly. Taking into account house prices and rents, most people in the South of England at any rate might welcome some relief from those indubitably inflationary pressures on their cost of living.

Psychologically, and looking to the medium term, the need is for the public to get used to the idea of the bank rate returning to more normal levels. The downside is that a hike hurts hard-pressed people . Yet while the turning point is important and will make plenty of headlines, it is unlikely to wreck any household, or small business’s finances. It would, though, be a reminder that the half-decade of the half-point bank rate we have enjoyed was extraordinary – unparalleled at least since the Bank of England was founded in 1694. As with the England squad, we must accept that all good things must come to an end.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

Read Next

Errors & Omissions: how to spell BBQ and other linguistic irregularities

Guy Keleny

South Africa's race problem is less between black and white than between poor blacks and immigrants from sub-Saharan Africa

John Carlin
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own