Brogan wrong to credit Osborne with lowering interest rates

Ben Brogan, reporting comments by Conservative MP and former George Osborne advisor Matthew Hancock, has argued that the Coalition’s fiscal policies have lowered interest rates.

Ben-Brogan-Matthew-HancockBrogan writes:

“On March 24, the date of Alistair Darling’s last Budget, two- and three-year rates were 1.205pc and 1.855pc respectively; on election day they were at 1.076 and 1.687; on June 22, George Osborne’s first Budget, 0.784 and 1.292; yesterday they were at 0.68 and 0.96. Ten year borrowing is down from 3.96 to 2.91.”

Whilst yields have fallen across the curve, this is not necessarily the result of Mr Osborne’s budget.

During the same time period, US two-year and three-year rates have fallen from 1.08 per cent and 1.67 per cent on March 24th, to 0.77 per cent and 1.21 per cent on June 22nd and are currently at 0.47 per cent and 0.72 per cent.

They have more than halved, despite Barack Obama not only not cutting now but actually proposing a further stimulus. There is no evidence for Mr Hancock’s claim that the Chancellor’s policies have reduced interest rates.

The West Suffolk MP further argues the falls in two-year and three year rates will mean lower mortgage payments:

“Interest rates on borrowing for 2 years or 3 years – the sort of rates fixed mortgages are based on – have halved. That’s a huge economic boost to families and businesses up and down the country.”

However Bank of England data shows that three-year fixed mortgage rates have only fallen from 4.68 per cent in March to 4.38 per cent in August. Whilst this fall is of course welcome, it is not as large as Hancock suggests.

On a typical £150,000 mortgage it represents an annual saving of £450 annually, easily swallowed by the £500 per household hit from the increase in VAT.

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