A recent article in the Financial Times pointed out that it has been ten years since the UK last saw a rise in interest rates. However, by far the bigger shock came in being reminded that, on that occasion, Base Rate was put up from 5.5% to a dizzying 5.75%.
In today’s low interest rate environment, that figure seems unthinkable, even unbearable. How did we all cope? Part of the answer lies in the fact that the economy then was growing at a considerably faster rate than it is now; GDP rose by 0.7% in Q1, 2007 compared to 0.2% during the first quarter of 2017. One of the major concerns at the time was the potential for an explosion in wages. But, of course, the global banking crisis had yet to descend upon us to usher in a decade of darkness.
The trend towards lower interest rates that started after the crash in 2008 has kept many families, and businesses, afloat, not least of all the banks themselves. In any other industry, their catastrophic losses – RBS was bailed out for £45bn and has since gone on to lose a further £58bn at the last count – and even worse behaviour, would not have been tolerated and they would have simply gone under and their management been sent to prison.
Maybe if the Government of the day had allowed some banks to fail, rather than shoring them up with taxpayers’ money, it would have been a better solution. We might even have had to endure a shorter period of darkness and the banks would have been less inclined to return to their privileged bad habits, including institutionalised fraud, for fear of real retribution. The “too big to fail” mentality protects them still, as does the conviction that the banks still operate under a different set of rules to the rest of us trying to run a business in the real world.
That said, it will be interesting to see the outcomes of the cases involving former senior banks that are currently going through the courts. Maybe the truth will out and we will see some belated justice in action.
Either way, the one big consolation is that banks’ collective failings and the economic environment of the past ten years have created a new and vibrant Alternative Finance sector where simplicity and transparency are the norm, and where smaller businesses can gain access to the finance they need to grow and investors can obtain a decent return on their cash with a reasonable level of security. So it’s not all bad and the decade was not entirely lost after all.
