Interest rate hikes ‘net positive’ for economy but not everyone

Published

11 months ago

January 5, 2024

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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.

Money latest: Mortgage price war ‘likely’ as 3% rates predicted

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.

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 in 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.

UK

Teenage girl killed on M5 in Somerset after getting out of police car named

Published

9 hours ago

November 15, 2024

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Teenage girl killed on M5 in Somerset after getting out of police car named

A teenage girl who was killed after getting out of a police car on the M5 in Somerset has been named.

Tamzin Hall, 17 and from Wellington, was hit by a vehicle that was travelling southbound between junction 24 for Bridgwater and junction 25 for Taunton shortly after 11pm on Monday.

She had exited a police vehicle that had stopped on the northbound side of the motorway while transporting her.

A mandatory referral was made to the Independent Office for Police Conduct, which is now carrying out its own investigation into what happened.

Avon and Somerset Police said: “Our thoughts and sympathies go out to Tamzin’s family for their devastating loss.

“A specially-trained family liaison officer remains in contact with them to keep them updated and to provide support.

“The family have asked for privacy at this difficult time.”

The police watchdog, the IOPC, has been asked to investigate.

In a statement, director David Ford, said: “This was a truly tragic incident and my thoughts are with Tamzin’s family and friends and everyone affected by the events of that evening.

“We are contacting her family to express our sympathies, explain our role, and set out how our investigation will progress. We will keep them fully updated as our investigation continues.”

Paramedics attended the motorway within minutes of the girl being hit but she was pronounced dead at the scene.

The motorway was closed in both directions while investigations took place. It was fully reopened shortly after 11am on Tuesday, Nationals Highways said.

UK

Mohamed al Fayed’s brother Salah also abused women, say female Harrods employees

Published

9 hours ago

November 15, 2024

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Mohamed al Fayed's brother Salah also abused women, say female Harrods employees

A survivors group advocating for women allegedly assaulted by Mohamed al Fayed has said it is “grateful another abuser has been unmasked”, after allegations his brother Salah also participated in the abuse.

Justice for Harrods Survivors says it has “credible evidence” suggesting the sexual abuse allegedly perpetrated at Harrods and the billionaire’s properties “was not limited to Mr al Fayed himself”.

The group’s statement comes after three women told BBC News they were sexually assaulted by al Fayed’s brother, Salah.

One woman said she was raped by Mohamed al Fayed while working at Harrods.

Helen, who has waived her right to anonymity, said she then took a job working for his brother as an escape. She alleges she was drugged and sexually assaulted while working at Salah’s home on Park Lane, London.

Two other women have told the BBC they were taken to Monaco and the South of France, where Salah sexually abused them.

The Justice for Harrod Survivors representatives said: “We are proud to support the survivors of Salah Fayed’s abuse and are committed to achieving justice for them, no matter what it takes.”

The group added it “looks forward to the others on whom we have credible evidence – whether abusers themselves or enablers facilitating that abuse – being exposed in due course”.

Salah was one of the three Fayed brothers who co-owned Harrods.

The business, which was sold to Qatar Holdings when Mohamed al Fayed retired in 2010, has said it “supports the bravery of these women in coming forward”.

A statement issued by the famous store on Thursday evening continued: “We encourage these survivors to come forward and make their claims to the Harrods scheme, where they can apply for compensation, as well as support from a counselling perspective and through an independent survivor advocate.

“We also hope that they are looking at every appropriate avenue to them in their pursuit of justice, whether that be Harrods, the police or the Fayed family and estate.”

The Justice for Harrods Survivors group previously said more than 400 people had contacted them regarding accusations about Mohamed al Fayed, who died last year.

One of those alleged to have been abused is Bianca Gascoigne, the daughter of former England player Paul.

Speaking to Sky News in October, Gascoigne said she was groomed and sexually assaulted by al Fayed when she worked at Harrods as a teenager.

UK

Wes Streeting ‘crossed the line’ by opposing assisted dying in public, says Labour peer Harriet Harman

Published

9 hours ago

November 15, 2024

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Wes Streeting 'crossed the line' by opposing assisted dying in public, says Labour peer Harriet Harman

Wes Streeting “crossed the line” by opposing assisted dying in public and the argument shouldn’t “come down to resources”, a Labour peer has said.

Speaking on Sky News’ Electoral Dysfunction podcast, Baroness Harriet Harman criticised the health secretary for revealing how he is going to vote on the matter when it comes before parliament later this month.

MPs are being given a free vote, meaning they can side with their conscience and not party lines, so the government is supposed to be staying neutral.

But Mr Streeting has made clear he will vote against legalising assisted dying, citing concerns end-of-life care is not good enough for people to make an informed choice, and that some could feel pressured into the decision to save the NHS money.

He has also ordered a review into the potential costs of changing the law, warning it could come at the expense of other NHS services if implemented.

Baroness Harman said Mr Streeting has “crossed the line in two ways”.

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“He should not have said how he was going to vote, because that breaches neutrality and sends a signal,” she said.

“And secondly… he’s said the problem is that it will cost money to bring in an assisted dying measure, and therefore he will have to cut other services.

“But paradoxically, he also said it would be a slippery slope because people will be forced to bring about their own death in order to save the NHS money. Well, it can’t be doing both things.

“It can’t be both costing the NHS money and saving the NHS money.”

Baroness Harman said the argument “should not come down to resources” as it is a “huge moral issue” affecting “only a tiny number of people”.

She added that people should not mistake Mr Streeting for being “a kind of proxy for Keir Starmer”.

“The government is genuinely neutral and all of those backbenchers, they can vote whichever way they want,” she added.

Prime Minister Sir Keir Starmer has previously expressed support for assisted dying, but it is not clear how he intends to vote on the issue or if he will make his decision public ahead of time.

The cabinet has varying views on the topic, with the likes of Justice Secretary Shabana Mahmood siding with Mr Streeting in her opposition but Energy Secretary Ed Miliband being for it.

The Terminally Ill Adults (End of Life) Bill is being championed by Labour backbencher Kim Leadbeater, who wants to give people with six months left to live the choice to end their lives.

Under her proposals, two independent doctors must confirm a patient is eligible for assisted dying and a High Court judge must give their approval.

The bill will also include punishments of up to 14 years in prison for those who break the law, including coercing someone into ending their own life.

MPs will debate and vote on the legislation on 29 November, in what will be the first Commons vote on assisted dying since 2015, when the proposal was defeated.