Goodbye to All That, as Sun Sets on Cheap Rates ; ECONOMIC ANALYSIS

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THIS month marks the second anniversary of the Bank of England cutting rates to their 0.5% record low, but the time to say goodbye to all that is fast approaching, judging from the latest smoke signals coming out of Threadneedle Street.

The two years on hold is comfortably the longest period of unchanged policy for more than 60 years, when borrowing costs were held at 2% throughout a decade of war and rationing in the 1940s. But as the pressure builds among rate-setters for a rise in May or maybe even as soon as next week, it's a good time to take stock.

For all the Monetary Policy Committee's fretting over credibility and rising inflation expectations as its fingers twitch again for the traditional levers of monetary policy, the fact is that an official rate of 0.5% has been a cosmetic irrelevance for swathes of borrowers across the UK, when the transmission mechanism -- our banking system -- is still impaired.

'The rate of has cosmetic irrelevance for many borrowers' Give the Bank its fair share of credit for acting boldly to ward off a potential rerun of the Great Depression when the crisis was at its worst, but -- as the MPC's David Miles said himself last week -- the fact that rates are close to zero "very significantly overstates" the amount of policy loosening since the days of 5% back in 2008.

Lower mortgage costs have kept consumers broadly afloat so far, but there have clearly been winners and losers in this era as a belatedly risk-averse financial sector decides where to bestow the MPC's largesse. The banks' own wholesale funding costs have risen, but so too have margins.

So what interest rates have we been paying on new borrowing over the last few years? That depends: take the period from January 2008, when official rates were 5.5%, to February this year. Although the Bank of England says overall new mortgages rates fell from 5.95% to 3.64% during the period, Moneyfacts figures show that would-be homebuyers looking to get on the ladder with a 10% deposit were being charged precisely 0.05% less for a twoyear fix at 6.08% last month.

Compare that with borrowing costs for a more affluent buyer with a 40% deposit, which have fallen by almost half to 3. …