MANY mortgage products are currently offering interest rates of about 4%.

Anybody currently paying that rate is, in effect, enjoying free money for the time being. That’s because yesterday’s Consumer Price Index came in at 4%, too, meaning that the real rate of interest being paid by these lucky mortgage borrowers is nil.

It may seem like the banks can’t be making any money, but they are, of course, paying even less to savers, giving them room for a margin on their banking business. With savings rates as low as 1%, many depositors are losing money after inflation is taken into account.

It all stems from the very low bank rate currently favoured by the Bank of England’s Monetary Policy Committee. This has been held at 0.5% for two years now.

With inflation expected to rise in coming months, it is hard to see how the very low base rate, and the associated mortgage and savings rates, can be sustained much longer.

The need for a sustainable real rate of interest could in the end prove to be the issue that forces interest rates to go up. Until that happens, we shouldn’t be too surprised to find that banks are unwilling to lend more money to home buyers.

The problem is that increasing interest rates is likely to slow the already tentative recovery.

Even if the Bank of England’s monetary policy committee thought it could impose an increase in the bank rate without damaging growth prospects, the chances are it wouldn’t dampen the inflationary trends we are witnessing.

That’s because the principal sources of inflationary pressures are not susceptible to the influence of our national monetary authority.

Part of the current 4% inflation rate is due directly to January’s VAT hike. That’s the work of government, as it struggles to bring its own finances back into balance. There’s nothing the MPC can do about VAT. It is, however, a temporary factor that will, in 12 months’ time, work its way out of the system.

An even bigger part of the inflationary equation, though, is a rapid rise in commodity prices. Everyday stuff like petrol, copper, wheat and sugar have seen their prices rise sharply in recent months. These pressures arise from a fundamental rise in demand for these commodities due to rising wealth and populations in other parts of the world. There is nothing the MPC can do about these factors either.

Worse still, rising commodity prices are not a temporary phenomena. We keep reading they are, but how can anybody really know? Price competition for the Earth’s resources is likely to get fiercer, particularly as America’s and Europe’s economies find their feet again.

And then there is the issue of sterling’s continuing long-term devaluation against the dollar and the euro. This exacerbates commodity price rises, making raw materials expensive to UK producers. But raising interest rates could help restore some strength to sterling, but, in so doing, would hinder the job-creating endeavours of our exporters.

It would seem our monetary policy setters are caught in an impossible position. Take no action and they risk sustaining inflation. Raise rates and they risk throttling the recovery.

PITY about the boat show.

The decision to cancel the event, originally scheduled for April, appears to be down to the tough times we find ourselves in. Surely, though, Liverpool is a good home for a boat show. Its time will come.