Mark Carney’s hefty hint that interest rates could rise sooner than markets anticipate is politically awkward but important, as until they do so, we shall have very little idea of how much of the recovery is based simply on cheap debt and how much of it is real. The car industry and house sales, for instance, benefit from ultra-low interest rates, and while they appear to be booming, it’s not clear how much of that boom is pushed by the bellows of cheap debt.
What’s more, the current situation punishes those who are doing exactly what the government wants them to do. When he announced the ‘savings revolution’ in this year’s Budget, George Osborne strangely neglected to mention that even though you can now drop £15,000 into an ISA in one year, you’re still better off paying off a mortgage than saving up a nest egg because of the poor returns that savings accounts offer in an era of low interest rates.
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