CARNEY PUTS AN END TO THE ERA OF EASY CREDIT

EVEN though the rates rise is only a quarter of a percentage point, we must not underestimate its potential to cause shock considering that it comes after a decade of super-low borrowing costs. Make no doubt: that period is now at an end. Even if Bank of England governor Mark Carney sugar- coats the rise as a necessity for the long-term health of the economy, the truth is that it will inevitably have a psychological impact on people’s spending plans.

No-one can say they weren’t warned the rate was set to rise.

But the fact is that these are fragile times. Further increases are expected – although they are most likely to be gradual and reach only 1 per cent by 2020.

That said, yesterday’s decision was an important signal that the era of easy and cheap credit, which has seen people spend and borrow with much more freedom and less risk, is over. Of course, on the flip- side, a rate-rise will please savers, who outnumber mortgage borrowers many times over and have long suffered from miserable returns on their investments. The upward move – though small – ought to come as a relief.

Although Carney has urged banks to pass on the benefit to savers, I fear that, as has happened so often in the past, lenders will move rapidly to lift the cost of borrowing faster than improving savings rates.

Yesterday’s decision by the Bank’s monetary policy committee ends a protracted period of uncertainty during which time Carney has been nicknamed ‘the unreliable boyfriend’ because of his failure to make up his mind about whether the base rate should go up.

Interestingly, two deputy Bank governors (former Treasury mandarins Sir Dave Ramsden and Sir John Cunliffe) voted to keep rates on hold. Clearly their opposition was based on concerns that inflation, currently at 3 per cent, has been running above the Bank’s target of 2 per cent and could edge up further as a result of still higher import costs caused by the depreciation in the value of the pound since the Brexit vote.

I suspect, too, that the duo’s reluctance was also based on political thinking – fearful of the Bank causing too much havoc in the run-up to what is universally expected to be a tough and unpopular Budget later this month with Chancellor Philip Hammond having little room to manoeuvre.

With Brexit negotiations struggling and a weak Government, the two former mandarins obviously felt it was not the right moment to hit people’s pockets and risk throwing the recovery off course.

But Carney is more optimistic, emphasising the relative strength of our economy, particularly with falling unemployment figures. Let’s hope he’s right – otherwise we’re in for a very rocky period with profound worries about levels of consumer confidence.