THERE is more and more good economic news coming out.

The country’s economic output – its Gross Domestic Product (GDP) – is growing at a faster rate, with improvement across all sectors.

The services sector – one of the biggest in our economy – is growing fastest but construction and manufacturing are coming a close second and third.

Confidence is returning to the high street and July saw the biggest increase in retail sales for a couple of years.

And the purchasing managers’ index, that measures business confidence, is at its highest for some time with the index showing that businesses are not just confident, they see expansion.

Economists are upping their forecasts for economic growth for this year and next.

This is all very good news indeed. We have, it seems, moved from rescue to recovery and some economists are now saying that we have reached ‘escape velocity’ where the momentum of improvement has its own inertia to keep it moving onwards and upwards.

But there is a cloud on the horizon. With improved economic activity, we are likely to see a move away from the period of super-low interest rates.

The new Bank of England Governor Mark Carney has indicated that he will give ‘forward guidance’ on where he thinks interest rates will be over the near-term future so as to prepare businesses and households for a pick-up in interest rates.

The previous government has come in for a lot of criticism about how it ran public finances and the economy in general. One area where it has so far escaped criticism is that of how it allowed – even encouraged – a ballooning of household debt.

Those of us old enough to remember the ‘80s will recall a boom. That boom saw an increase in household debt, measured as percentage of household income, from 70 per cent to 80 per cent (averaged across the country).

From 1997 to 2007, household debt rose from 80 per cent to a truly eye watering 170 per cent – more than double. It has come down; it is now around 145 per cent but it is still very high indeed.

Why does this matter? For the simple reason that households have got used to this period of super-low interest rates. But when rates start going up to a more normal period of low interest rates – from the current base rate of 0.5 per cent to around 3 or 4 per cent – then the cost of servicing mortgages and credit card debts will not just go up a little bit: they could double or triple on a monthly basis.

Households have been left very vulnerable indeed by the financial crisis. That is why it is absolutely vital that we do everything we can to keep interest rates as low as possible for as long as possible, so households can get ready for when rates inevitably rise again.

CONTACT YOUR MP

  • Email: mark.garnier.mp@ parliament.uk
  • Telephone: 020 7219 7198 or 01562 746771
  • Write: 9a Lower Mill Street, Kidderminster, DY11 6UU, or House of Commons, Westminster, London