Turning Japanese? I really think so

After the rate cut, one question presents itself: is the British economy turning Japanese? Now rates are at 2%, it makes you wonder how low they can go and whether we are approaching a zero-rate like Japan after its economy blew up in 1990, leading to the “lost decade”? To answer it, let’s get a doctor to take a picture so we can look at the UK economy from the inside as well (*)

The market expects rates to bottom at 0.75% next spring and then rise slowly. So those lucky few on a variable mortgage will be in the money for the foreseeable future – like Japan, where rates never quite picked up. The Brown bust had the same characteristics of Japan’s: a debt-fuelled asset boom followed by painful recession and demand slumping so low that we get deflation. In a way, Britain is worse placed than Japan because its households were able to spend whereas ours have debt at 178% of income – the highest any G7 country has ever known.