Get set for rate rises – Osborne
Chancellor’s warning as China jitters hit FTSE
THE country must prepare for an increase in interest rates, Chancellor George Osborne said yesterday.
He painted a bleak picture of threats to the global economy as market turmoil in China continued to send shock waves around the world.
Trading in Beijing was abandoned yesterday l ess than 30 minutes after the stock market there fell 7 per cent for the second time this week.
In London, the FTSE 100 index fell 2 per cent to back below the 6,000 level, with losses echoed in Europe and on Wall Street. Sterling also fell against the dollar.
In the worst start for the UK stock market for 16 years, nearly £ 75billion has been wiped off the value of the biggest firms so far this year.
In a major speech to business leaders yesterday, Mr Osborne said that after an interest rate rise in the United States just before Christmas, the Bank of England would consider a similar move.
UK interest rates have been held at a historic low of 0.5 per cent since the economic crash.
The Chancellor said: ‘One of the biggest monthly bills that many people pay is their mortgage and an important source of income to people is their savings.
‘So it’s no wonder that people are starting to talk about what a rise in interest rates might mean for us all.
‘Of course, interest rates are not something that we decide – that is for the independent monetary policy committee and the Bank of England.
‘But inevitably, with the US Federal Reserve having made their decision to raise rates last month, inevitably there is a discussion about how and when we begin to move out of a world of ultra-low rates.
‘Let’s be clear – higher interest rates are a sign of a stronger economy.
‘The job of the Government is to make sure that we’ve got in place policies to monitor overall levels of indebtedness among families and the wider economy, and backing savings too.’
Mr Osborne said that while the British economy had performed ‘ better than almost anyone dared to hope’ in recent years, i t was not ‘ mission accomplished’ and t ough spending cuts would be delivered this year.
He warned borrowers to prepare for more expensive mortgage rates, saying the rise in the US was ‘ the beginning of the exit from very, very low interest rates’. He added: ‘ Of course there will come a point where that happens in Britain. We have got to be ready.’
The Chancellor’s speech was seen as a swipe at Labour for suggesting Britain could go back to the ‘bad habits’ of borrowing beyond its means.
It was also regarded as paving the way for more cuts in his Budget in March. But Shadow Chancellor John McDonnell accused Mr Osborne of ‘getting his excuses in early’.
The Chancellor’s comments came as official figures to be published today show that household debt rose to a record high of £319billion in the third quarter of last year – higher than in the run-up to the 2008 crash.
The figure, from the Office for National Statistics, includes bank loans, credit card debt and student loans but excludes mortgages.
A TUC analysis of the figures found the average debt per household is now £11,821 – up £600 on the previous year. It put the rise down to slow wage growth, job insecurity and the rising cost of living.
Mr Osborne’s former chief of staff Rupert Harrison, now a chief strategist at investment group BlackRock – told BBC Radio 4 rising household debt ‘should be put in context’.
He added: ‘That certainly was a very important problem in the run-up to the crisis in 200708, but if you look at the numbers today in the context of where they were before the crisis, household debt is still much lower than it was.
‘We shouldn’t be alarmed by numbers that are mainly reflective of an economy returning to health.’
City – Pages 70-73
‘Getting excuses in early’