Moneyfacts Publishes Issue Eight Of INTEREST

7th June 2024

Moneyfacts Group plc, the UK's leading provider of retail financial product data, has published the latest issue of its ‘INTEREST' publication.

‘INTEREST' seeks to identify the effects, positive or negative, interest rates have on the main sectors of the economy.

The latest issue, titled "Is having rates too low as bad as having them too high?", focuses on the post-2007-8 crisis period of loose monetary policy:

"Interest rates will be harmful if set too high, but the experience of the past 15 years shows they can also have similarly damaging effects when set too low and particularly if monetary policy is allowed to remain too accommodative for as long as it did in the United Kingdom between 2008 and 2022.

"The 2007 and 2008 crisis led to a protracted period of low nominal interest rates, negative real interest rates and quantitative easing in the pursuit of faster economic growth. The ineffectiveness of its policies is why the Bank of England became stuck near the ‘zero lower bound' after it had cut interest rates to almost nothing.

"The policies also had harmful side effects on public finances, the economy, savers, pensions and all who do not already own a home of their own. Taxpayers are on the hook for the estimated £85 billion cost of unwinding these programmes, which is set to add further to the national debt."

Issue eight of ‘INTEREST’ further highlights:

“The Moneyfacts Rules of Thumb stipulate that Bank Rate should be maintained at a level that is 2.5% above inflation to ensure a fair balance between the interests of borrowers and lenders, while also keeping inflation pressures in check."

“The signs of failure are evident in the present levels of sterling exchange rates, which have never recovered to their pre-2008 values, as well as in the UK’s main share indices and the share prices of all of Britain’s major banks."

“This publication proposes that RPI be made the official barometer of inflation as well as the targeted variable for monetary policy. It further proposes that rate setting be carried out in a technical way with Bank Rate adjusted upward or downward whenever inflation rises or falls outside of a 1% to 3% range.”

“The adverse effects of the BoE’s post-2008 policy might never be fully unwound and, with inflation still being somewhat mismeasured, it is now all the more important for rate setters to return to and maintain a more appropriate calibration of monetary policy in the future.”

‘INTEREST’ is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/