Bank of England suggests interest rates affect birth rates

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Jan 02, 2020

A drop in interest rates can lead to more babies being born, a new paper from the Bank of England suggests.

A one-percentage-point decline in the policy rate increases birth rates by 2 per cent, the Bank’s researchers Fergus Cumming and Lisa Dettling said in a paper on Friday reported by Reuters.

For families paying adjustable-rate mortgages that vary with the Bank’s rate, the effect was even more pronounced, as each percentage point reduction in benchmark interest rates saw birth rates increase 5 per cent for that group.

In 2009, when borrowing costs were slashed amid the global financial crises, an extra 14,500 babies were born, the Bank’s research estimates.

While there was a fall in the birth rate in the US over the same period the researchers looked at, property price declines and the dominance of fixed-rate mortgages could have explained this, according to the researchers.

They write: “Our descriptive comparisons with the US suggest that if more families had been able to obtain a lower interest rate, the US might not have experienced as severe of a ‘baby bust’ in the Great Recession.”

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