But the implication is obvious , and is that within 18 months or so of a new parliament the more than 9 million households with mortgage debt will be seeing their average monthly outgoings increase by about £200 a month. That is, to put it in context, about £22 billion of consumer spending that will not be happening each year as a result – which is the equivalent of increasing VAT by more than 4%.
So the simple question to any potential Chancellor is how are you going to keep any recovery going in the face of this?
You’re only going to raise interest rates if aggregate demand is rising by more than that £22 billion, obviously.
£22 billion is about 1.4% of GDP. So, if immigration and economic growth (and you can play around with inflation as well if you want) are increasing demand by more than 1.4% then you can raise interest rates.
Current estimates of real UK GDP growth are 3.2, 3.3 %.
This isn’t even a difficult part of macroeconomics.