The Day When A UK Interest Rate Hike Really Was Scary

As hinted at many times since the start of October, Bank of England Governor, Mark Carney has announced the first increase in the base lending rate since July 2007. Following Thursday's meeting, Monetary Policy Committee voted for a quarter point rise taking rates to 0.5%. Although it's the first increase in over a decade, rates are still historically low - it was only 15 months ago that they were cut to 0.25%, in the wave of uncertainty following the Brexit referendum result. This month's rise was almost as predictable as Christmas. Over the last few weeks the writing's been on the wall - increasing numbers of mortgage lenders withdrawing their best fixed-term deals, inflation edging up to 3%, growth at 0.4%, and unemployment at its lowest since 1975. From the media's build-up to the announcement, you'd have thought we were on the verge of some major calamity, rather than just a move that's put interest rates back to the level where they'd stood firm for seven-and-a-half years between March 2009 and August last year. And indeed, Carney indicated that any process of future increases would be gradual - an approach which could mean there's little downward room for manoeuvre should we crash into a Brexit-related recession. To my long political memory, the last time an interest rate increase - or anticipated increase - received so much attention was on that Wednesday over 25 years ago, a September afternoon that got really scary. 1992 and all this? There was no such meagre 0.25% increase on 16 September 1992. On that day interest rates shot up in a double whammy - first by 2%, then by a further 3% which was to take effect the following morning. And we weren't at some low starting point of 0.25% either. At the start of the day rates were already at 10%. Think about it. How many first-time buyers today would even believe that, within their lifetime, UK interest rates were in double figures? In those days before wall-to-wall rolling news coverage, Radio 4's PM was the first programme to cover any analysis of what was unfolding. In what has to be one of the most startling examples of a vox pop in UK radio history, PM took a microphone onto a street of London shoppers to hear their reaction to the news: '15? It's incredible.' 'Well that's going to kill everything, isn't it? Houses are never going to sell...' 'Good God, well I think that's absolutely appalling.' 'Good, great, more repossessions.' 'What? No it hasn't, you're just doing that to shock me, surely.' 'I don't believe you.' 'God almighty, what are people going to do now? ...I think I'll go and get drunk and out of the way.' The pre-occupation with house sales and repossessions of course, referred to the amount of negative equity affecting many mortgage holders at the time. Given all this, perhaps this week's coverage of the rate rise was a bit of an over-reaction. Yet it is an important development, and 1992 isn't as far in the rear view mirror as we might like to believe. Closely related to the high interest rates, another major factor at the time was the UK crashing out of the ERM (European Exchange Rate Mechanism) soon after. That in a year of major political and economic integration across Europe. Needless to say, it changed many people's views of European integration, and effectively put paid to the UK joining the Euro. That crash, and its immediate aftermath, still resonate in these days of post-Brexit Conservative rule. 1992 not only turned many Brits against the EU, it signalled the beginning of the end of many years of Tory rule. From that point on, there was nothing prime minister John Major could do pull his party back in the polls - and this, close to the beginning of his parliamentary term, leaving him in power but mortally wounded.