Bank links low interest rates to a baby boom

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.”