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FactCheck: how high were interest rates in the eighties?

By Channel 4 News

Updated on 22 September 2008

Labour boasts of its economic record against the last Conservative government - but are its interest rate claims on target?

The claim

"Interest rates are at 5 per cent, not the double figures of two decades ago."
Alistair Darling, chancellor of the exchequer, speech to Labour conference, 22 September 2008

The background

Cripplingly high interest rates - along the Black Wednesday debacle and those three million unemployed - are among the historic grenades in Labour's anti-Tory armoury.

And in these turbulent economic times, it never hurts the party to remind voters of just how bad things used to be under the Tories - or at least, that would seem to be the thinking behind the PM and chancellor's many lobs from the history books.

In a speech to the party's conference yesterday, chancellor Alistair Darling compared today's 5 per cent interest rate to the "double figures of two decades ago".

This came the day after the prime minister, interviewed by Andrew Marr on BBC 1, talked of the 15 per cent interest rates "in the last world downturn". "We sorted out the instability of the economy, so we have lower interest rates. We had 15, 18 per cent interest rates at one point," he later went on to say.

Was the interest rate picture of old as high as the government is trying to paint?

The analysis

Ten per cent-plus interest rates were common during the early and mid eighties, and in September 1988, interest rates were indeed in double digits - although they'd only just reached this level.

Rates hovered between 9 and 7.5 per cent for the first half of 1988, before breaching the two-figure mark on 21 July. By September, it was 12 per cent, and went up another percentage point in November 1988.

Things got worse in 1989, with rates reaching 15 per cent in October. They dropped a percentage point in October 1990, and then continued to drop steadily through 1991, landing at 10.5 per cent in September 1991.

The blackest cloud of interest-rate history - at least in recent memory - floats 16 years ago this month, when the UK crashed out of the Exchange Rate Mechanism on Black Wednesday.

On 16 September 1992, interest rates went up from 10 per cent to12 per cent - and the Tory government said they would go up again to 15 per cent the next day.

This 15 per cent peak associated with Black Wednesday wasn't actually implemented - there was no need to raise the rates further as the UK conceded ERM defeat.

A month later, rates fell to 8 per cent - the start of a general downward trend until they reached a modern-seeming 5.75 per cent in June 1996.

Rates then rose once more under the Tories, to the 6 per cent (October 1996) that Labour inherited in May 1997. Rates continued to rise - gradually - for the next year, reaching 7.5 per cent in June 1998, the highest they've ever been under this Labour government.

The verdict

Interest rates hit double digits 20 years ago, and stayed there until late 1992, with a peak of 15 per cent in 1989.

However, the 18 per cent that Brown mentioned yesterday, when talking about the instability that Labour has sorted out, is an exaggeration.

Back in November 1979, six months after Margaret Thatcher became prime minister, interest rates hit 17 per cent, the highest since records began in 1694.

Interest rates in the eighties tended to be much higher than over the past decade, although it's worth remembering, when Labour boasts of kickstarting interest-rate stability, that the trend of decline from double-digit rates started in 1992, four-and-a-half years before the party came to power.

FactCheck rating: 1

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The sources

Gordon Brown interview, Andrew Marr Show, BBC 1, 21 September 2008
Transcript of Alistair Darling's speech to Labour Party Conference, 22 September 2008
Bank of England - official bank rate history

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