Cover of MoneyWeek magazine issue no 525

Making hay

17 February 2011 / Issue 525

It's a good time to invest in agriculture


  • Why Mervyn King is right to hold interest rates
  • A cheap drug giant for your portfolio
  • The hunt for Mubarak's billions


If I were Mervyn King, would I vote to raise interest rates? I suspect I wouldn’t be quite brave enough. With the rate as measured by the Consumer Price Index at 4% and the Retail Price Index rate at 5.1%, there is no doubt inflation is uncomfortably high. But that doesn’t mean we can, or should, try to do much about it.

Anyone in doubt as to the fragility of the UK economy need only look back at the most recent economic data. GDP growth is flat at best. Unemployment is still rising, with youth unemployment at a record high somewhere over 20%. Our productivity is collapsing. And the fact that the base rate is low doesn’t mean for a second that the credit environment is particularly easy. Rates on personal loans and credit cards regularly hit new highs; getting a mortgage remains a distant dream for the average would-be first-time home buyer; and as John Stepek pointed out in MoneyMorning this week, as the year goes on, things will get much worse.

Why? Because since the start of the financial crisis our banks have been supported by the Bank of England via the likes of the Special Liquidity Scheme and the Credit Guarantee Scheme, both of which allowed them to get their hands on cheap funding. They are about to lose that support. The result? By the end of this year the banks will have to find £110bn or so on the open market and by the end of 2012 they’ll have to refinance something in the region of £400bn-£500bn.

Where will the money come from?

• Read the full editor’s letter here: King is right to be cautious

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