The era of low interest rates is ending – its legacy is inequality and toxic


On Thursday at midday the Bank of England’s monetary policy committee will announce an interest rate rise. Some City analysts have predicted the announcement will jack up the rate by 0.75 of a percentage point (mimicking that of the European Central Bank in early September) to a total of 2.5%. An upward jump of this size has not occurred since the Bank was made independent in 1997. And the last time interest rates have moved by more than half a percentage point in either direction was in the depths of the 2008 banking crisis, when they were cut rapidly in an effort to shore up the circulation of credit.

Even if, as other observers expect, the announcement is merely of a rise of a 0.5 percentage point, it will be one more step on a staircase that is likely to reach at least 4% by early next year. Regardless of pace, these rises mark the conclusion of one of the most extraordinary economic policy experiments in modern history. The architects of this era – characterised by uniquely low interest rates – were unelected technocrats rather than politicians, and yet they leave a profound political and economic legacy of spiralling inequality, channelled above all through the ownership of housing.

In the 314 years separating the founding of the Bank of England and the 2008 crisis, interest rates had never once fallen below 2%. But for most of the past 14 years, they have been below 1%. Throughout David Cameron’s time in Downing Street, interest rates were stuck at the previously unthinkable level of 0.5%. When disruption struck in the form of the Brexit vote, they were cut further. When an even bigger shock hit in the form of international lockdowns, they were cut further still, right down to 0.1%. Added to this was the asset-purchasing programme (quantitative easing), which drove effective interest rates down yet further, and is only now being gradually unwound.

The reasons for these exceptional decisions were clear. The financial system seized up between 2007 and 2009, with banks becoming unwilling to lend to each other. Cheap money was injected like a blood transfusion to stabilise the system. The austerity measures of George Osborne, which mendaciously blamed Britain’s economic woes on government debt, resulted in such dire economic stagnation that only unprecedented monetary policies could stave off a depression. With the government refusing to stimulate the economy using fiscal policy, and inflation well below the Bank’s target of 2%, the job of growing the economy fell to monetary policymakers, whose only tool was to create more and more cheap money, and whose only point of intervention was high finance. None of this was about getting money to the areas of greatest social need, and it did nothing to aid those who depended on unsecured borrowing through credit cards or payday loans.

What can we say about the social and political legacy of this era, that is now at an end? It was, of course, a period of rapid house price inflation, fuelled by the ultra-cheap mortgages on offer. That in itself wasn’t unprecedented: house prices also rocketed during the Blair era (rising by 25% in 2002 alone), a time when interest rates were at…



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