Newspaper article The Evening Standard (London, England)

It's a Happy Sixth Birthday to Rates at Record Lows for Some of Us

Newspaper article The Evening Standard (London, England)

It's a Happy Sixth Birthday to Rates at Record Lows for Some of Us

Article excerpt

Byline: Russell Lynch ECONOMIC ANALYSIS

ONLY a crackpot would have given any credence to the idea that Threadneedle Street would still be flooring the economic pedal six long years later when the Bank of England slashed rates to 0.5% back in March 2009.

Yet here we are, blowing out the candles on another birthday. Interest has long since waned in London on decision days as the attention shifts to Frankfurt and the European Central Bank's printing press.

And with rates not forecast to rise until well into next year, financial markets are betting on a seventh anniversary as well. It's not as long as the 19-year stint of unchanged rates between 1932 and 1951, and a mere fraction of the 103 years interest rates were left at 5% from 1719 but still the best part of a decade.

Compared with the UK economy's dire position in March 2009, the lowrates medicine as well as the Bank's PS375 billion in quantitative easing is working. Unemployment is down by more than 400,000 since March 2009, with a tailwind from plunging prices. We've managed above-trend growth for five quarters running: back then we were in the midst of a savage recession lasting five consecutive quarters.

But inevitably there are winners and losers. Rock-bottom rates mean that if you've been on the housing ladder since 2009, you're in clover. Prices are up more than 25% since then, according to the Nationwide, inflating the assets of the older, greyer parts of society at the expense of the young. And if you're in a position to buy a house, banks are virtually giving cash away. The average cost of a new mortgage has fallen just to 2.81% according to the Bank's latest figures, the first time the rate has ever fallen below 3%.

That will be scant consolation to the growing army of younger people stuck in private rentals over the past six years. Since 2009, the share of 25 to 34-year olds stuck in the rental boat has jumped from 31% to 48%, the latest English Housing Survey figures tell us, with the number of owner-occupiers slipping downwards (see graph). Buyto-let lending is back at 2008 levels. Hence David Cameron's belated but welcome pledge to build an extra 100,000 homes for the under-40s this week. …

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