It's not surprising that interest rates might finally be on their way up

Carney's warning not all that shocking.

New UK bank governor Mark Carney warned yesterday that interest rates could finally be on their way up after over four years at 0.5 per cent.

The move would not be surprising for a number of reasons:

  • Savers, particularly the elderly, are coming under increasing pressure due the low rates over the past four years.
  • UK house prices have begun to recover. According to figures from the Land Registry, house prices in England & Wales rose by 0.9 per cent in 2012 and by 0.1 per cent in the first four months of 2013. Although this growth is moderate, it does show that the market is stabilizing.
  • The British Pound has deprecated by 5 per cent against the US dollar so far this year. This has impacted on inflation which rose from 2.4 per cent in April 2013 to 2.7 per cent in May 2013.
  • The UK stock market (FTSE 100) is up by 7.6 per cent so far this year in GBP terms and by 3.7 per cent in US dollar terms (as at 19 July 2013).

Increasing rates will a number of effects. It will:

  • Encourage more investment in the UK bond market which will help support the Pound.
  • Reduce consumer spending which will put downward pressure on inflation.
  • Cause people to pull money out of the stock market and move it into cash.
  • Put pressure on the housing market, particularly at the lower end.

The last point is the one that will weigh on the mind of Mark Carney the most. This is mainly due to the fact that over 60 per cent of UK individual wealth is tied up in the property market (according to the ONS). This is one of the highest proportions in the world and explains why the UK’s fate is so heavily linked to property. In contrast, German’s have less than 20 per cent of their individual wealth in property which shows why they are less susceptible to changes in its value.

In GBP terms, UK residential prices have declined by 12 per cent since their peak at the end of 2007 (Source: Land Registry). In US dollar terms the decline has been even more alarming at 34 per cent. This means that the average UK individual has lost over 20 per cent of their US wealth over the past five years due to the decline in property prices.

Bank of England Governor, Mark Carney. Photograph: Getty Images

Andrew Amoils is a writer for WealthInsight

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.