For business' sake - interest rates must stay low

  • With inflation at 3.7%, why is everybody starting to advocate increasing interest rates?

    The inflation in the economy is cost-push, not demand-pull. Simply put, prices are going up because the cost of goods is going up - not because demand is running away with itself on the back of borrowed money. The important subtlety is that it is import costs - principally fuel and food - that are going up, not domestic ones.

    The theory is that as you increase interest rates, speculators are encouraged to buy sterling and its value goes up. The relative cost of imports therefore goes down.

    But hang on a minute. The £ will only rise sustainably on the back of underlying economic strength. If that underlying strength doesn't exist, the £ will remain under pressure and we will be caught up in a perilous spiral of rising interest rates in a vain attempt to shore it up.

    Economic strength comes from a strong balance of payments and a healthy business sector that is creating employment and driving domestic demand.

    The consequences of a rise in interest rates now would be catastrophic for the recovery: our resurgent export industry would be dealt a debilitating blow and people with mortgages would be forced to cut back. Businesses too would be saddled with an increased cost - slowing employment and forcing some to the brink.

    To load a rise in interest rates on top of an increase in VAT, the rise in fuel duty and the impending increase in employees' NI, all in the same quarter, would be a particularly vindictive form of masochism.

    Interest rates will have to go up at some point - we all accept that - but only when we have an excess of demand, which is not now.

    Please folks, see sense. A bit of inflation in the economy today, when the causes are readily identified and the adjustment rationally explained, is a worthwhile price to pay when the alternatives are contemplated.

Related articles

  • Read More

    Will Google show a "NOT SECURE" warning on your site?

    There has been an announcement today that Google Chrome will show security warnings whenever a user enters text on a form on an HTTP page. That means any page that has an input field (like

  • Read More

    Brexit - Seven days in and it’s time to go to work

    ‘Be careful what you wish for’ is one phrase that has acquired added poignancy in the dizzy days that have followed the decision to ‘Brexit’. Accusations and counter-accusations continue to...

  • Read More

    A Budget for alternative savers

    Chancellor George Osborne’s latest Budget statement contained few major surprises for the business sector, but did serve to confirm that many of the initiatives to support the Alternative Finance...

  • Read More

    Winning the SME vote is a contact sport

    Arguably the most crucial General Election in a generation is less than three months away, on May 7 to be precise....

  • Read More

    Mixed response to the Budget

    The Chancellor delivered yet another Budget recently which, as usual, offered a mix of both good and bad news - depending largely on your viewpoint. We spoke to a selection of our clients to see what...

  • Read More

    End of the recession? It's barely half-time

    Neil Edwards, Managing Director of The Marketing Eye, looks ahead to the Budget on 20 March and calls for measures that deliver hope and confidence above all else....

  • Read More

    Feeling the pulse of business confidence

    The recent news that the UK economy is in a double-dip recession makes dismal reading. The Prime Minister described the figures as ‘very very disappointing’ while the Labour leader Ed Miliband...

  • Read More

    Real Business #18 - Econokit

    Real Business is a series of posts that analyses the marketing opportunities and challenges of real businesses in the South East. The interviews are undertaken by Keith Lewis of The Courier....

  • Read More

    Our clients share their views on Budget 2012

    At The Marketing Eye, we always enjoy gathering our clients' reactions to the Budget when it is announced. With a broad range of clients to call upon, our clients' views represent a true...

  • Read More

    Real business #17 - BitSpicy

    Real Business is a series of posts that analyses the marketing opportunities and challenges of real businesses in the South East. The interviews are undertaken by Keith Lewis of The Courier....

Take the first step

To find out more about how we can help you grow faster, please get in touch. We'd like to hear from you.  Or try our instant marketing healthcheck, it's free!

Quick Contact

Quick contact


Contact us

T 01825 765617


Our offices

Full details of our offices in London and Uckfield more

Request a call