Halt to run of interest rate rises was overdue
The Herald’s Business Editor presents his analysis on the week that was
FIGURES highlighting the major impact of the surge in interest rates on firsttime buyers in the Scottish housing market, reported last week by The Herald, threw into stark relief the extent of the woe arising from the UK’s inflation crisis and consequent leap in borrowing costs.
This distress is being felt by households and businesses the length and breadth of the UK, in many different contexts.
The data from UK Finance, the banking and financial services trade association, show the value of lending to those in Scotland wanting to buy their first home was, in the year to June 2023, much lower than in the 12 months to June 2021.
Benchmark UK interest rates have surged from a record low of 0.1% in December 2021 to 5.25%.
Scottish housebuilder Springfield Properties late last month flagged the impact of high interest rates, mortgage affordability issues and reduced confidence among the house-buying public on its business, adding that its board did not expect the situation to improve materially before next spring.
Springfield revealed “significantly lower levels of reservations in private housing”.
My column on Wednesday in The Herald observed that, over years and decades of having covered and watched Monetary Policy Committee votes, the decision at the MPC’s September meeting to hold benchmark UK interest rates at 5.25% was one of a fairly small number of big surprises.
Of 65 economists polled by Reuters between September 11 and 13, nearly all had forecast a further quarter-point rise in base rates at the MPC’s September meeting, with only one projecting no move.
Blow to millions
WHILE a surprise, however, a halt to the relentless run of rate rises seemed overdue. There appears to be good reason to believe that much of the effect of the long sequence of interest-rate increases up until and including the August MPC meeting has yet to be felt.
That said, the column observed the MPC appeared to leave the door wide open to a further increase in benchmark interest rates, which would be another blow to millions of households and many businesses.
Both the monetary policy summary and the minutes of the committee meeting state: “The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the committee’s remit.
“Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures.”
While that might seem a little longwinded to the unseasoned observer, it looks to amount in an MPC context to not beating about the bush.
My column in The Herald on Friday focused on another issue that never seems very far from the headlines – the relationship between the Scottish Government and business.
It was interesting to hear the take of Glasgow Chamber of Commerce’s chief executive on the current state of the relationship between the Scottish Government and business the week before last, and particularly so because it was so different from the picture he has painted before.
‘Raw anger’
BEFORE anyone gets over-excited, it should be emphasised that Stuart
Patrick was not talking about the dawning of a new age of harmony. Rather, he was offering his impression that there was a willingness to give recently installed First Minister Humza Yousaf’s administration “a chance to deliver on its promises”.
This current view contrasts with the perceptions Mr Patrick, inset, offered in the later years of Nicola Sturgeon’s time as First Minister.
Mr Patrick said in December 2020: “I think the Scottish Government has a challenge in that a lot of the business community are concerned the Scottish Government doesn’t trust the business community. That attitude is reaching a level of being reciprocated.”
Noting he spent a lot of time speaking to business leaders, he added: “There is a raw anger at times with the way business perspectives are dismissed in the debate in Scotland.”
It is worth observing the willingness of some business leaders in Scotland to wax lyrical about dissatisfaction with Holyrood, while being quieter or completely silent about the enormously detrimental impact of policy decisions by the Conservative government at
Westminster on firms and the economy north of the Border, remains remarkable.
Poor policymaking
THAT said, there are thankfully enough astute business leaders who do make a noise about this damage from UK Government decisions. Mr Patrick himself has highlighted shortcomings of the UK Government, and the problems that has caused for business.
In a general sense, noise from business leaders about poor policymaking at Westminster is crucial, not only in holding the Conservatives to account but also in terms of exerting pressure on them to pull up their socks on the economy, however unlikely a scenario that might be.
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