A LEADING Yorkshire businessman has raised concerns about the long-term impact of low interest rates.
Speaking after the visit of the Governor of the Bank of England to Yorkshire, Mark Abrahams said the policy of holding base rate at 0.5 per cent has created “distortions”.
He said a small rise would have minimal impact on businesses and households and would set a direction for the economy.
At the moment, a rise “always seems a year away”, said Mr Abrahams, who is the chairman of Fenner, the listed conveyer belt manufacturer.
Mr Abrahams argued that keeping low rates incentivises people to maintain high levels of debt in pursuit of consumer spending.
He told The Yorkshire Post: “It is too easy to spend a bit more rather than pay off a bit more debt. As a consequence of the above we fail to recognise that a lot of debt simply is not repayable.
“By keeping interest rates low we hope that time will erode the value of the debt. This means that in effect, over a period of time, the creditor is effectively subsidising the debtor.”
This is leading to a large transfer of wealth, he added.
Mr Abrahams said assessing investments such as productive assets or equities becomes very difficult with such low costs of capital: “As a consequence we are probably living with a large amount of overvalued assets.”
Mark Carney visited Rotherham on Thursday.