Immigrants brought us low mortgage rates

By This Is Money
Updated: 12:09 EDT, 4 November 2007

Now that Northern Rock has effectively been nationalised, we, its new owners, must decide what to do with it.

A modest proposal would see it merged with a revived National Savings Bank, at a stroke safeguarding the about-to-be vandalised Post Office network, promoting financial inclusion and offering the public an alternative to the commercial banks and building societies.

No chance of that, of course, so perhaps we ought to look at a very different use for the stricken institution - as a permanent wreck. Of this notion, more later.

Meanwhile, the Bank of England's Monetary Policy Committee meets this week and is expected to leave the base rate at 5.75%. You might recall those long-ago days of early summer, when the rate went up from 5.5%. Back then, there seemed only one direction for borrowing costs - upwards. Talk was of 6%, 6.25% and beyond.

Then came the panic over banks holding toxic securities, such as those backed by sub-prime American home loans.

In the ensuing credit crunch, in which Northern Rock came a cropper, all talk of higher rates went out the window, to be replaced by speculation about rate cuts.

So why not leave Northern Rock as a state-sponsored smouldering ruin, whose very presence will ensure that the MPC maintains cheap credit for a very long time?

Because, alas, it could well be that the gravitational force holding down rates is not the credit crunch at all but another big news story.

'The main reason is that wage inflation has stayed low,' said Trevor Williams, economist at Lloyds TSB. 'And it has stayed low as a result of immigration.'

Or, as Lord (Digby) Jones, then the employers' leader and now a Labour Trade Minister, put it approvingly on August 20, 2006: 'Wage inflation has not been a problem. Immigrants are doing the work for less.'

In other words, the real purpose of our 'diverse' and 'vibrant' soaring population is to hold your wages down. The only consolation is that it holds down your mortgage payments at the same time.

Presumably, this is the 'platform of economic stability' about which we have heard so much for so many years.

Northern rock share prices in detail