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Extraordinarily low interest rates “are a danger to the long-term health of the economy” – IoD

09 Jan 2015

The Bank of England, as predicted, has voted today to maintain interest rates at the current extraordinarily low level of 0.5%. Business leaders at the Institute of Directors said the Bank was holding off from raising rates because of the uncertainties the economy faces, but warned that policy makers could not sit on their hands forever. James Sproule, Chief Economist at the IoD, said:

“We fully expect the Bank to keep rates at their historically low level for at least the first half of the year, driven by concerns about the effect on consumers and businesses, and worried by the uncertain political situation with an up-coming election. But, as dissenting members of the Monetary policy Committee have highlighted, these extremely low rates are a danger to the long-term health of the economy, as it is increasingly apparent the neutral interest rate is rising. The longer that low rates persist, the more likely it is that the UK will face problems as households and companies view extraordinary monetary policy as normal, and take on levels of debt which would be unaffordable with even modest interest rate rises.”

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