Cashing out

What could be more terrifying than a return to the 15 per cent interest rates with which homebuyers had to contend in the early 1990s? Possibly the vision presented last week in UBS’s Global Economic Outlook: interest rates at minus 5 per cent. It would take us to an unknown world where savers who deposited £100 in a bank would return a year later to find only £95 left.

This month’s small rise in interest rates has rekindled fears that the era of ultra-low rates could be at an end and that millions of borrowers, enticed into loans thinking rates of virtual zero are normal, could be left with debts they could not repay. But there is an alternative scenario. UBS notes that during the last crisis the Bank of England slashed rates from a peak of 5.75 per cent in the summer of 2007 to a low of 0.5 per cent 18 months later. If we were to head into another recession with rates at 0.5 per cent, the bank reasons, it would require a similar loosening of monetary policy, with rates having to go well into negative territory.

It would ensure that, as after the 2008/09 crisis, the people who ended up paying the price for the latest binge in consumer debt were not borrowers at all but savers; people who carefully put money aside while others splashed out. Their savings would effectively be raided to bail out the reckless.

We can expect a recession sooner rather than later, too — Brexit or no Brexit. Eight years, historically, has been a long time to go without a recession. Moreover, personal debt is building again to unsustainable levels. In September, the outstanding unsecured debts of UK consumers once more nudged over £200 billion, the level it reached in the summer of 2007.