Interest rate hikes ‘net positive’ for economy but not everyone
Here’s a sentence which might sound a little odd: higher interest rates have been good news for the UK economy.
For the first time in many decades, the pain faced by borrowers from higher interest rates has been more than balanced out by the benefit experienced by savers from those interest rates.
If this sounds a little odd it’s partly because invariably, when people – the media, politicians and economists – talk about interest rates they focus unduly on one side of the equation: the plight of the borrower. And there’s an understandable reason for that: in previous “hiking cycles”, when the Bank of England raises interest rates, that pain has invariably outweighed the windfall.
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That was the case when borrowing rates were lifted in 1988; it was the case in 1996, in 2003 and in 2006.
In each case the overall impact, across the economy, on households’ balance sheets was negative.
But not so this time around.
According to the Resolution Foundation, the net income we’ve earned, across the economy, as a result of interest rates, has actually risen rather than fallen – up by a percentage point since rates started going up.
To put that into perspective, the “interest rate effect” on incomes in the late 1980s was -1.5 percentage points.
And what’s striking, when you compare the UK to the euro area and the US, is that we are a bit of an outlier: the interest rate effect, across the economy, was much more positive than it was in those two other areas.
This, says the Resolution Foundation, is at least part of the explanation for how the UK hasn’t yet slipped into the recession a lot of people anticipated this time last year.
Part of the explanation for this is that it so happened, in large part because of the pandemic lockdowns, that people began this hiking cycle with a lot of savings in their bank accounts – far more than usual.
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The upshot was that, across the economy, the benefit from those savings (and savings rates went up very quickly – albeit not to the levels of borrowing rates) was greater than the impact on mortgages and loans. Another part of the explanation is that so far only around half of those with fixed-rate mortgages have re-fixed their loans.
But there are a few very important provisos here. The first and perhaps most important is that while the above is certainly true across the whole economy, there’s a dramatic difference of experience for different categories of people.
Those whose debts outweigh their savings (which in this case mostly means younger people) will certainly see a negative impact from higher rates. Those with far more savings than debts – the older segments of the population – will see a benefit. In other words, the pain and the dividends are not being equally shared out. The old are doing much better; the young are doing worse.
And there are two other provisos. The first is that this positive impact will begin to wear off as more and more people re-fix their mortgages and go up from low-interest rates to higher rates. Even though the typical fixed-rate deal has been coming down recently, it’s still far higher than it was two or five years ago.
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The final proviso is that none of the above takes into account the broader impact of the cost of living crisis.
Everyone is having to pay higher prices for nearly everything. And while the annual rate at which those prices are increasing (inflation) has decelerated, the level of prices remains more than 15% above where it was a couple of years ago.
That’s a painful adjustment for everyone. The good news is that the impact of rates – across the economy as a whole – has actually been positive rather than negative. But not everyone will be seeing the benefits.
Prosecutors are considering whether to bring further criminal charges against Lucy Letby over the deaths of babies at two hospitals where she worked
The Crown Prosecution Service said it had received “a full file of evidence from Cheshire Constabulary asking us to consider further allegations in relation to deaths and non-fatal collapses of babies at the Countess of Chester Hospital and Liverpool Women’s Hospital”.
“We will now carefully consider the evidence to determine whether any further criminal charges should be brought,” it added.
“As always, we will make that decision independently, based on the evidence and in line with our legal test.”
Letby, 35, was found guilty of murdering seven children and attempting to murder seven more between June 2015 and June 2016 while working in the neonatal unit of the Countess of Chester Hospital and is currently serving 15 whole-life orders.
Letby worked at the Countess of Chester Hospital and Liverpool Women’s Hospital
She is understood to have carried out two work placements at Liverpool Women’s Hospital, where she trained as a student, between October and December 2012, and January and February 2015.
Police said in December that Letby was interviewed in prison as part of an investigation into more baby deaths and non-fatal collapses.
A Cheshire Constabulary spokesperson said: “We can confirm that Cheshire Constabulary has submitted a full file of evidence to the CPS for charging advice regarding the ongoing investigation into deaths and non-fatal collapses of babies at the neo-natal units of both the Countess of Chester Hospital and the Liverpool Women’s Hospital as part of Operation Hummingbird.”
Detectives previously said the investigation was looking into the full period of time that Letby worked as a nurse, covering the period from 2012 to 2016 and including a review of 4,000 admissions of babies.
Letby’s lawyer Mark McDonald said: “The evidence of the innocence of Lucy Letby is overwhelming,” adding: “We will cross every bridge when we get to it but if Lucy is charged I know we have a whole army of internationally renowned medical experts who will totally undermine the prosecution’s unfounded allegations.”
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Three managers at the hospital where Lucy Letby worked have been arrested on suspicion of gross negligence manslaughter.
On Tuesday, it was confirmed that three managers at the Countess of Chester hospital had been arrested on suspicion of gross negligence manslaughter in a separate investigation.
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Police said the suspects, who occupied senior positions at the hospital between 2015 and 2016, have all been bailed pending further inquiries.
There is also an investigation into corporate manslaughter at the hospital, which began in October 2023.
A public inquiry has also been examining the hospital’s response to concerns raised about Letby before her arrest.
In May, it was announced the inquiry’s final report into how the former nurse was able to commit her crimes will now be published early next year.
Earlier this year, Letby’s lawyers called for the suspension of the inquiry, claiming there was “overwhelming and compelling evidence” that her convictions were unsafe.
In February, an international panel of neonatologists and paediatric specialists told reporters that poor medical care and natural causes were the reasons for the collapses and deaths.
Their evidence has been passed to the Criminal Cases Review Commission (CCRC), which investigates potential miscarriages of justice, and Letby’s legal team hopes her case will be referred back to the Court of Appeal.
A power outage that shut Heathrow Airport earlier this year, causing travel chaos for more than 270,000 passengers, was caused by a “catastrophic failure” of equipment in a nearby substation, according to a new report.
Experts say the fire at the North Hyde Substation, which supplies electricity to Heathrow, started following the failure of a high-voltage electrical insulator known as a bushing, before spreading.
The failure was “most likely” caused by moisture entering the equipment, according to the report.
Two chances were also missed that could have prevented the failure, experts found, the first in 2018 when a higher-than-expected level of moisture was found in oil samples.
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Moment Heathrow substation ignites
Such a reading meant “an imminent fault and that the bushing should be replaced”, according to guidance by the National Grid Electricity Transmission.
However, the report by National Energy System Operator (NESO) said the appropriate responses to such a serious issue were “not actioned”, including in 2022 when basic maintenance was postponed.
“The issue therefore went unaddressed,” the report added.
The design and configuration of the airport’s internal power network meant the loss of just one of its three supply points would “result in the loss of power to operationally critical systems, leading to a suspension of operations for a significant period”, the report added.
Heathrow – which is Europe’s biggest airport – closed for around 16 hours on 21 March following the fire, before reopening at about 6pm.
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Heathrow bosses were ‘warned about substation’
Around 1,300 flights were cancelled and more than 270,000 air passenger journeys were disrupted.
Tens of millions of pounds were lost, thousands of passengers were stranded, and questions were raised about the resilience of the UK’s infrastructure.
More than 71,000 domestic and commercial customers lost power as a result of the fire and the resulting power outage, the report said.
NEOS chief executive, Fintan Slye, said there “wasn’t the control within their [National Grid’s] asset management systems that identified that this [elevated moisture levels] got missed.
“They identified a fault, [but] for some reason the transformer didn’t immediately get pulled out of service and get repaired.
“There was no control within the system that looked back and said ‘oh, hang on a second, you forgot to do this thing over here’.”
Sky’s science and technology editor, Tom Clarke, pointed to the age of the substation’s equipment, saying “some of these things are getting really very old now, coming to the end of their natural lives, and this is an illustration of what can happen if they are not really well maintained”.
The report also highlights a lack of joined-up thinking, he said, as “grid operators don’t know who’s critical national infrastructure on the network, and they don’t have priority”.
Responding to the report’s findings, a Heathrow spokesperson said: “A combination of outdated regulation, inadequate safety mechanisms, and National Grid’s failure to maintain its infrastructure led to this catastrophic power outage.
“We expect National Grid to be carefully considering what steps they can take to ensure this isn’t repeated.
“Our own Review, led by former Cabinet Minister Ruth Kelly, identified key areas for improvement and work is already underway to implement all 28 recommendations.”
In May, Ms Kelly’s investigation revealed that the airport’s chief executive couldn’t be contacted as the crisis unfolded because his phone was on silent.
Energy Secretary Ed Miliband, who commissioned the NESO report, called it “deeply concerning”, because “known risks were not addressed by the National Grid Electricity Transmission”.
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Mr Miliband said energy regulator Ofgem, which opened an investigation on Wednesday after the report was published, is investigating “possible licence breaches relating to the development and maintenance of its electricity system at North Hyde.
“There are wider lessons to be learned from this incident. My department, working across government, will urgently consider the findings and recommendations set out by NESO and publish a response to the report in due course.”
The Metropolitan Police previously confirmed on 25 March that officers had “found no evidence to suggest that the incident was suspicious in nature”.
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