Comment: Rate rises can help boost the economy

WE REALLY need to get over ourselves on the almost statutory angst about the timing of any interest rate rise after monetary policy has been at historic lows for six years. As outgoing Bank of England rate-setter David Miles says, any such rise is not anything to worry about – it’s a sign of Britain’s returning economic health.
Martin Flanagan. Picture: Fiona HansonMartin Flanagan. Picture: Fiona Hanson
Martin Flanagan. Picture: Fiona Hanson

Think of it in terms of a patient on an artificial oxygen supply in hospital after a bad car crash instead of the country poleaxed by the financial crisis/recession. Those low rates, like oxygen, make us feel better and a bit more physically secure, even if making us occasionally light-headed.

But the sign that we are really recovering is when the oxygen tube is removed, we are moved out of intensive care and are able to walk around the grounds of the hospital.

Hide Ad
Hide Ad

It is the same with interest rates. Making it cost a bit more to borrow shows the economic patient has largely recovered their strength.

Rates would not be going up if the economy was still in recession or stagnant, or if unemployment was a worry. A rise from the unsustainably low 0.5 per cent shows the economy is strong enough to return to a reality not cushioned by the drug of cheap credit. It would also be good news for savers, who have been the fall guys in bailing the country out of its banking industry-induced woes.

Those savers have been neither irresponsible bankers or fantastic-plastic junkies, but have paid the price for both camps. An eventual rate rise will prove we are back on our feet. We should welcome it, not fear it.

No EnQuest inquest

Energy explorer EnQuest is the latest to demonstrate the classic response of much of the North Sea industry to the slump in the oil price. Cut capital spending, hedge your bets both literally and metaphorically, and look to suppliers and the costbase to mitigate the worst effects.

It hasn’t stopped statutory losses and a slide in underlying profits at EnQuest, but it has helped. In addition, productivity at the group looks healthy.

The Malaysian assets are breaking sweat and North Sea projects due to come on stream should help. EnQuest is making the best of a tough backdrop.