Governor of Bank of England Mark Carney made right call on interest rates
As climbdowns go, it was rather sure-footed and elegant. In fact, Mark Carney, the governor of the Bank of England, reminded me of one of those snowboarders at the Winter Olympics performing a trick at the apex of their jump.
Mr Carney was all deftness and flexibility in front of the camera. Nevertheless, the governor's decision to abandon his previous measure (only introduced a few months ago) of when to raise interest rates, was humiliating and unprecedented, but ultimately absolutely correct.
It would be foolhardy to raise rates because unemployment is shrinking fast, particularly with inflation low and borrowers still massively overburdened with debt. I am intrigued, though, about the Bank of England's forward thinking that rates could go up in the second quarter of 2015, which would be slap bang in the middle of a general election. That will be an interesting test of the bank's independence.
Overall, though, Mr Carney's shift from inflation to unemployment as a determinate of future interest rate rises was an error that fortunately he has the good sense not to compound.
So, what, though, does this mean to you? Well, it only really delays the inevitability of a rise in interest rates, and such now is the forward guidance issued by the bank, that markets are already factoring in a series of rises in 2015 and 2016.
Don't forget a crucial point here, that the interest rate you pay is not set by the Bank of England (or else you would be paying 0.5% which is comfortably below inflation), but what markets decide.
In fact, ever since the financial crisis, there has been a wide differential between Bank of England rates and what you actually pay for your home loan – and savings for that matter (currently there are no cash individual savings accounts which pay above inflation).
It will be a major test of the soundness of the financial system and confidence in markets when rates do eventually go up.
This could well be the moment when we draw a line under this drawn-out financial crisis – or at least the first stage of it which relates to bank and personal debt.
There is still the chance a future crisis may engulf government finances – after all it has been ruinously expensive standing as backstop not just to the banking system, but to the wider economy.