Bank links low in­ter­est rates to a baby boom

The Daily Telegraph - - Front page - By Gabriella Sw­er­ling and Tom Rees

LOW in­ter­est rates can raise house prices but also boost birth rates, Bank of Eng­land re­search sug­gests.

Ex­perts at the UK’S cen­tral bank set out to in­ves­ti­gate if its pol­icy and mort­gage rates af­fected peo­ple’s de­ci­sions whether or not to have chil­dren. They found that cut­ting in­ter­est rates ap­peared to stim­u­late more than just the econ­omy – an ex­tra 14,500 ba­bies were born af­ter it cut the cost of bor­row­ing dur­ing the 2009 global fi­nan­cial crash.

“Mon­e­tary pol­icy can have spillover ef­fects on a host of eco­nomic and so­cial out­comes,” re­searchers con­cluded.

But the Bank also said yes­ter­day that ul­tra-low bor­row­ing costs had fu­elled a prop­erty boom that put house prices be­yond the reach of young buy­ers.

The Bank said soar­ing aver­age house prices rel­a­tive to in­comes fol­lowed the “dra­matic” de­clines in in­ter­est rates.

Fer­gus Cum­ming and Lisa Det­tling, the Bank of Eng­land re­searchers analysing the links be­tween UK mort­gage rates and births, pub­lished their find­ings in a pa­per, ti­tled Mon­e­tary pol­icy and birth rates: the ef­fect of mort­gage rate pass-through on fer­til­ity.

They es­ti­mated that for each per­cent­age point fall in bench­mark in­ter­est rates, birth rates rose by 5 per cent among fam­i­lies pay­ing ad­justable-rate

mort­gages. These are mort­gages which go up or down along with the Bank of Eng­land’s Bank Rate.

“On aver­age for the UK, a one per­cent­age point de­cline in the pol­icy rate in­creases birth rates by 2 per cent,” they said in the pa­per.

In con­trast with Bri­tain, the birth rate in the US fell dur­ing the pe­riod stud­ied by the re­searchers. This was linked to the preva­lence of Amer­i­can fixed-rate mort­gages and the im­pact of prop­erty price de­clines.

“Our de­scrip­tive com­par­isons with the US sug­gest that if more fam­i­lies had been able to ob­tain a lower in­ter­est rate, the US might not have ex­pe­ri­enced as se­vere of a ‘baby bust’ in the Great Re­ces­sion,” they said.

The pa­per con­cluded: “Short-term fluc­tu­a­tions in birth rates can also have im­por­tant ef­fects on the econ­omy. Fam­i­lies who move for­ward their child­bear­ing plans will also move for­ward any as­so­ci­ated con­sumer spend­ing.

“And year-to-year fluc­tu­a­tions in co­horts and class sizes can have im­por­tant im­pli­ca­tions for ed­u­ca­tional at­tain­ment and fu­ture labour mar­ket out­comes. Over­all, our pa­per sug­gests mon­e­tary pol­icy can have spillover ef­fects on a host of eco­nomic and so­cial out­comes.”

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