Interest Rates To Be Held Firm For 3 Years Says New Governor of the Bank of England

 

Interest Rates To Be Held Firm For 3 Years Says New Governor of the Bank of England

Halleluiah, Mr Carney is a welcome breath of fresh air to the macroeconomics business that we need badly at the moment.  The previous administration, of Sir Mervyn King, frankly had its focal points exclusively on inflation and therefore everything was directed to it.  Clearly, the new Governor has been given a wider brief that includes unemployment. That is closer to the American model as most observers consider the unemployment rate in the USA to be the one of the key components in the recovery of the economy  -more so than inflation.

Frankly with better weather and lower energy prices food and petrol prices should start to fall  and that provides upwards pressure on inflation.  Clearly savers will be hit hard for the foreseeable future but on the other hand mortgage interest rates will remain low and perhaps is the reason why residential property is the place to invest.

I turn, once again, to the problem with the banks and their lending criteria for business and residential development. Clearly they are not interested in the official interest rate since their margins are so huge as they are lending effectively at 7-8% when arrangement and exit fees are taken into consideration.

Whilst Governments don’t ordinarily like to meddle in the markets they should give recommendations to the banks (particularly those they partly own) as to the margin that they offer for lending purposes.

The banks now insist upon 50-60% loan to value ratio and interest should be paid throughout the course of the development which causes a cash flow drag for the developers who need to find at least 50% seed corn capital to make the development ‘jive’.

These measures, together with Help-to-Buy and reform of the planning process, in aggregate could get the ‘show on the road’.

It is very heartening for the consumer to have bounded back in terms of retail spending in July with such vigor.  By all accounts manufacturing is also greatly improving. That means that the most recent figures for the economy may well be correct and effectively means that Britain is the fastest  growing economy in Europe.

Who needs to be tethered to the European model with a permanently high unemployment average of 8% (that is double the average for the USA) and a very slow growth rate for many years to come while their wall of government debt hangs over them?