In response to interest rates remaining unchanged at 0.5% for a 65th consecutive month (Report, 10 July), we strongly advocate a 0.25% rate rise in August, working towards Bank of England governor Mark Carney's "new norm" of 2.5%. The below-target consumer price inflation, 1.5% in May, gives the Bank the necessary leeway to act now. We advocate this approach as the sustained low interest rate is encouraging households and businesses to borrow to excess.
Britain's household borrowing is at a record high of £1.44tn, equivalent to an average household debt of £54,629, on a background of a 2.2% fall in real wages a year. While we applaud the financial policy committee's decision to limit the proportion of high loan-to-income mortgages and related affordability checks, we question whether this is enough to cool the market. Carney himself warned in April that the economy faced renewed dangers from excessive borrowing as encouraged by low interest rates.
We have been told that any future interest rate rises will be data-driven. A marked relapse in manufacturing output in May, when it fell 1.3% month on month, highlights that ongoing strong growth cannot be taken for granted and we recommend a rate increase at the next possible opportunity. The CEO of Lloyds Bank, António Horta-Osório, said at a recent event at Judge Business School that banks had a duty to give back to society. We would encourage the monetary policy committee to announce this rise on 7 August, helping to embrace Carney's vision of banks contributing to the good of the people.
Dr Rav Seeruthun
Dr Ian Colwill
Cambridge