MEP says interest rates should be increased to 6% ‘now’

Interest rates should immediately increased to six per cent to encourage people to save and invest, Godfrey Bloom, member of the European Parliament for Yorkshire and North Lincolnshire, has told FTAdviser.

Interest rates, currently at 0.5 per cent, are wiping out pension funds, savings and annuity rates, meaning that it is old people on fixed incomes that “are getting hammered”, according to Mr Bloom.

He believes that the Bank of England should take a look at how Paul Volcker, an American economist, raised interest rates in the 1970s and 1980s.

Mr Volcker was the chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan from August 1979 to August 1987 and is widely credited with ending the high levels of inflation seen in the United States during that period, Mr Bloom said.

He said: “Why aren’t people talking about Paul Volcker in the 80s when the US was going belly up and he put interest rates up which stabilised the whole form of money?

“It brought back entrepreneurship, it stopped speculation. You only have speculation when you have zero per cent interest rates. Interest rates should be put up now: zero per cent interest rates are not the panacea... [they] are the problem.”

Mr Bloom argued that in the last six months the UK’s inflation level was around 4.2 per cent and prior to this around 5.2 per cent. At these levels he said it is “absurd” for interest rates to be at 0.5 per cent.

He said: “Interest rates should be six per cent in the UK. Why are we running the entire economy for people who borrow and not people who invest?

“The problem that we have in the Anglo-sphere countries – North America, the UK and Australasia - is lack of savings. We don’t save any money and if you don’t save money, you can’t invest any money.

”If you had five per cent or six per cent inflation and zero per cent interest rates, nobody can invest; you’ve turned investment into a lottery.”