Low interest rates are ‘unhealthy for the economy’ and are ‘misleading borrowers’, a former Government adviser has said.
Dr. Ros Altman, director general of Saga, said that the Bank of England’s (BoE) decision to keep the base rate low is encouraging savers and borrowers to take on ‘risker’ loans.
According to Altman, borrowers are being enticed into taking loans at artificially low rates as the economy begins to pick up and both mortgage lending and house prices begin to rise.
“The Bank of England should take off its blinkers and look at the economic evidence,” she said.
Savings and mortgage rates are closely linked to the BoE’s base rate which has remained at 0.5 per cent since March 2009.
Her comments calling for a slow rise in interest rates come as the Bank’s Monetary Policy Committee (MPC) meets to discuss the base rate and its asset purchase programme or quantitative easing scheme.
Posting on her blog, Ros Altman said: “Ultra low interest rates are distorting the economy now, driving borrowers and savers to take on too much risk. This is what caused the crisis in the first place, when financial markets misunderstood or mis-priced risk and encouraged irresponsible borrowing or lending.”
“Looking at the economy without blinkers, it is hard to see why rates are at the emergency levels of 2009. Consumer spending is strong, house prices are rising fast, manufacturing and the Purchasing Managers Index have increased sharply, construction is picking up, exports have improved and around a million new jobs have been created.”
She added: “I strongly believe the MPC should start gently easing interest rates up now, giving people a better idea of what they can really afford, rather than the illusion of affordability created by current artificially low rates.”