Trends in real interest rates

Quarterly Bulletin 1988 Q2
Published on 01 June 1988

It is frequently claimed that UK interest rates are 'excessive'. The point is commonly made with reference to nominal interest rates, which have been, and still are, higher in the United Kingdom than in many other industrial countries. Nevertheless, real rates of interest are likely to have a greater and more long-lasting influence on investment and savings decisions. This note attempts to set UK rates in an international context. First, pre-tax and post-tax rates in the United Kingdom, the United States, Germany, Japan, France, Italy and Canada (the G7 countries) are compared, extending the analysis undertaken in previous Bulletins. In general, these comparisons suggest that at the end of 1987 UK real rates of interest were a little higher than those in the rest of the G7 grouping, reflecting the authorities' commitment to the continuation of a successful anti-inflationary policy Nevertheless, the discrepancy was considerably less than nominal rate differences suggest and would seem to have declined during the first quarter of 1988. Furthermore, taking the last decade as a whole, UK rates did not behave markedly differently from those in other countries. After presenting these conclusions, some of the difficulties in constructing real interest rates are discussed.

PDFTrends in real interest rates


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