LETTERS: Financial logic underlying interest rate rises

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Sir: As a home-owner and a self-employed professional, I am vulnerable to the Government's handling of economic strategy. The Chancellor's decision to raise interest rates has left me (and thousands like me) deeply confused and worried.

In brief, the facts appear to be: first, yesterday's interest rate was the third in five months; second, the recovery is past its peak, according to the Governor of the Bank of England; and finally, the growth in the economy has largely been export-led.

Am I right in thinking that the above state of affairs spells trouble? The recent interest rate rises have been said to be preventative medicine to ward off future sharp rises. How many "small" increases in interest rates over a relatively short period must there be before they collectively become a sharp rise such as would damage growth? If the recovery is past its peak, why is it that no one noticed it and why then do we need the interest-rate brake applied?

As the growth, such as there has been, has been largely export-led, and as there are reports by companies of running at a near-full capacity, how will interest-rate rises deal with this situation and how does this affect domestic prices? Moreover, what happens if domestic demand picks up?

As your columns remind us, the only reason our export performance has been at all creditable has nothing to do with Kenneth Clarke or his predecessor, but has only come about because of Britain's unceremonious removal from the ERM in September, 1992.

All the person in the street can see is long-term pain with no short-term gain (or any gain).

Yours sincerely, Stephen Hesford Manchester 3 February

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