We have to accept that the UK is unfashionable as an investment place, partly as a hangover from Brexit and the Truss administration. That will take a long time to reverse itself 📧 Read HamishMcRae5's latest newsletter here
If all this seems rather glum – at least for borrowers, though not savers – note that while rates in the UK are high, they are not that much above other countries. Our two-year rate of nearly 5 per cent compares with a bit over 4.75 per cent in the US, and our five-year rate of 4.5 per cent with 4.1 per cent there.
If the choice is whether to go for a five-year fix and pay a bit less, or go for a two-year fix, pay a bit more but hope rates will be lower in two years’ time, then it is about the risk you are prepared to take. But if there is a single message to borrowers it is this: no one knows what will happen to interest rates, including the central banks, so try and build up some cash reserves. And the single message for lenders is that you must help borrowers in trouble, tiding them over until global interest rates come back down.While interest rates are far lower now than in the 1980s and 1990s, house prices relative to incomes were much lower too.
But from a monetary management point of view, there was a problem. Whereas changes in interest rates had an immediate impact on how people lived their lives – when rates rose they had to cut back – now, thanks to the fact that most mortgages are fixed, it takes a long time for changes in rates to filter through the economic system.Indeed, it seems that the initial impact of an increase in rates by the Bank of England is tospending power, not cut it.
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