Friday, May 25, 2007
Debt is weighing down the consumer
Interest rates tend to take between 18 months and two years to have their full effect on the economy. This means that we are still feeling the effects of the Bank’s controversial decision to cut rates from 4.75pc to 4.5pc in August 2005.
No one doubts that inflation remains a significant threat to the economy, but there seem to be very few voices warning that the Bank is in danger of overcompensating and lifting borrowing costs that little bit too high.
The biggest risk of all is, as ever, the housing market. One tweak too many will send many households into the red, and could topple property prices. Economists are always loth to mention it, but the threat of a housing market crash is still as real as ever