Could low interest rates threaten the UK economy?

Whilst the majority of news outlets, businesses, corporations and government parties are keen to point out our positive economic stance, it seems that overlooking low interest rates could threaten the UK economy in the future.

Stable recovery in 2014

Ahead of the general election on the 7th of May, Chancellor George Osborne may well be able to claim credit for the strongest annual performance since the start of the financial crisis. An interesting thought when looking back at the coalition government.

2014 saw stable recovery; growth in services, construction, manufacturing and production, drops in unemployment and more stable house prices. But are our interest rates threatening to harm these critical economic developments?

Six years of record lows

At a record low of 0.5%, the central bank’s current interest rate is at rock bottom. It has remained at its emergency setting since the MPC voted to keep the Bank’s low rate back in March 2009. And whilst low rates provide a number of benefits, the risks are undeniable.

The ongoing dangers of low interest rates are according to the Telegraph, a possible increase in inequality, reduced productivity, excessive inflation and making it hard to counter future economic crises.

Interest rates

Many predicted a rise in interest rates at the start of 2015, but after a sharp decline in the rate of inflation – falling way below the target of 1pc – forecasts of a rate hike have been pushed back a whole year to the first quarter of 2016.

With volatile loan rates, declines in fixed rate savings and returns for savers, and record mortgage rate lows, the current economic climate is at a turning point. And only time will reveal the true outcomes of our near-zero interest. But we must be weary of the risks and damage that might be caused by raising rates too late.

About the Author

Having worked in financial services for over 36 years, Andrew Darling is a specialist in invoice discounting, factoring and trade finance solutions. He currently manages the development of business with higher turnover companies at Bibby Financial Services, specialising in corporate finance for businesses with turnover of £5 million or more.

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