Belfast Telegraph

George Osborne: We must prepare for interest rate rises

By Staff Reporter

Britain must prepare for rises in interest rates, George Osborne has said, as he warned that 2016 will be a "mission critical" year for the UK economy.

In a high-profile economic speech in Cardiff, the Chancellor warned against complacency about the strength of the recovery at a time when Britain faces a "dangerous cocktail" of instability and threats ranging from slowdown in China and unrest in the Middle East to volatility in oil prices.

And he said some economists were warning of the danger of "secular stagnation", which sees extended periods of moribund growth caused by a combination of permanently low interest rates, high savings and weak business investment.

Mr Osborne said: "One of the biggest monthly bills that many people pay is their mortgage and an important source of income for people is their savings, so it's no wonder that people are starting to talk about what a rise in interest rates might mean for us all.

"Inevitably, with the US Federal Reserve having made their decision to raise rates last month, there is a discussion of how and when we begin to move out of a world of ultra-low rates.

"Let's be clear - high interest rates are a sign of a stronger economy. The job of government is to make sure we've got in place the policies to measure overall levels of indebtedness among families while backing savings too."

PwC chief economist Esmond Birnie suggested that the Chinese slowdown could be the "fizz" at the top of the cocktail referred to by Osborne.

But he said China's problems would not necessarily rub off on Northern Ireland.

"It is of note that our exposure to the Chinese market continues to be relatively small and amounts to about £100m of sales annually... with only about 2% of all export sales going to China, Northern Ireland is much less exposed to the Chinese market than the rest of the UK. In 2013, 5% of all UK exports of goods and services were sold to China."

And while it would be to Northern Ireland's benefit to expand into markets like China in the long-term, "in the short term, given the current uncertainties in the world economy, we are somewhat - though not entirely - insulated".

Belfast Telegraph