The UK Economic Recovery – interest rates and the final result

11 Nov 2014


Earlier this year, my father went to a local bank to enquire whether he could get a better rate on his savings, only to be told that it was not possible at this time and to shop around. He was then told that if he wanted they could give him a personal loan at a very good rate. He declined the offer.


Speaking to a number of people, I now wonder whether the relationship between the Chancellor and the Governor of the Bank of England is as distant as we are led to believe. In other words, ‘how independent is the Bank of England when it comes to making monetary policies, especially in regards to interest rates?’


I see that there are four main reasons for the so-called ‘wonderful’ growth in the economy, from reviewing several articles relating to it; house prices, consumer spending, easy credit, and government spending. There are three main facets which culminate into one main reason ‘people are spending and getting into more debt to boost this fragile economy’. Evidence of this is that total personal debt stood at £160 billion by the end of April this year, a rise of £4 billion since last year.


My facts have been taken from various sources including CalculatorR3, and the Money Charity, which supplies monthly debt statistics, so here goes.


House prices, according to a leading mortgage lender, have been rising at a rate of 75% which in turn is making people feel wealthier and encouraging them to spend. Consumer spending and easy credit are probably the main reasons for this recovery which is being hailed by the Chancellor, but at what price?


  • Outstanding personal debt stood at £1.452 trillion at the end of July 2014.

  • Total credit card debt in July this year was £57.4 billion.

  • Average consumer credit borrowing per UK adult stood at £3,206 in July 2014, an increase from the previous month.

  • Average household debt (excluding mortgages) stood at £6,080 in May 2014, a rise over the previous month.

  • The amount that the average household can save on an annual basis has fallen by 10% since 2010.

  • Based on July 2014 trends, UK households would have paid an average of £2,236 in annual interest repayments.

  • During the course of June 2014 on a daily basis, 33.1 million purchases using plastic cards were made worth £1.567 billion.

  • Based on annual figures to the end of March 2014, Citizens Advice Bureau in England and Wales are dealing with 6,519 debt problems every working day.

  • 297 people on a daily basis are declared to be insolvent or bankrupt, equivalent to one person every 4 minutes and 51 seconds.

  • An R3/ComRes survey of over 2,000 adults carried out earlier this year estimated that 43% of British adults “often” or “sometimes” struggle to payday, while 8% of adults stated that it was likely they would take out a payday loan in the next six months, compared with 6% in September 2013.


I think we get the picture of what’s really happening to the economy and the cause. Low interest rates coupled with personal spending to boost the economy - no wonder that Bank of England Governor is changing the goal post regarding interest rates and to which the Chancellor has said that “criticism of the Bank of England’s forward guidance of the policy has been unfair”. We are all too aware what would happen if interest rates were to rise. We could probably see a halt to this economic boost, more homes repossessed than the present 71 on a daily basis, and more people unable to pay their spiraling debts and becoming insolvent. But of course the Coalition Government would look very bad if this was to happen which is something the Conservative Party will try to avoid at all costs.


It does seem to me that the Chancellor is out to reduce the country’s deficit and achieving his personal goal but has little interest in people getting further into debt and what the final result for working people will be. No Mr. Chancellor, we are not all in this together! And what about all those positive statistics on people now in work? That’s up for another debate.


By Vittorio Trevitt


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