A dangerous game

Keeping interest rates low may well be the best way to deal with the national debt, says Merryn Somerset Webb. But there will be repercussions.

House prices are at record highs. Consumer credit rose over 10% in the year to April. The household debt-to-income ratio is 140% not far off its historical highs. Asset markets are bubbling a bit. Pretty much everyone in the UK drives a new car paid for on the never-never. The savings ratio plumbs new depths. Inflation has just hit nearly 3% so anyone getting the base rate only of 0.25% on their savings is losing 2.75% of their money to inflation every year (before tax!). Worse, about a third of savings accounts pay under 0.25%. And academic papers are suggesting that low interest rates might be playing a nasty part in the UK's productivity problem.

So assume that you are in charge of the Bank of England (with a clear mandate to keep inflation at 2%) and you are old enough to remember what happened to the economy in 2007/2008. What do you do? To most of us the answer would be obvious. You'd recognise that most of the problems listed were a direct result of your policies and you'd raise interest rates. Sadly, you aren't in charge. Mark Carney is and he and his team don't seem to be quite ready to make the move.

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Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.