Central bank interest rate decisions, household indebtedness, and psychiatric morbidity and distress: Evidence from the UK

Abstract

Background: Central banks set economy-wide interest rates to meet exclusively economic objectives. There is a strong link between indebtedness and psychiatric morbidity at the individual level, with interest rates being an important factor determining ability to repay debt. However, no prior research has explored whether central bank interest rate changes directly influence mental health, nor whether this varies by levels of indebtedness. Methods: We use British data (N = 93,255) to explore whether the Bank of England base-rate affected how perceived burden of non-mortgage debt (low, medium, and high) influenced psychiatric morbidity. Psychiatric morbidity was measured using the General Health Questionnaire (GHQ-12). Our primary outcome measure was a binary indicator of "psychiatric caseness" (> 3 on a 0-12 scale). We also used the GHQ-12 as a continuous measure of distress. Results: When interest rates are high (low) there is an increased (decreased) risk of psychiatric morbidity only among those with a high debt burden (b = 0.026, p = 0.02). This result was robust to alternative explanations. Thus a 1 percentage point base-rate increase is associated with a 2.6% increase that someone with a high debt burden will experience psychiatric morbidity. Limitations: Our study uses subjective indicators of debt burden. We were unable to determine the mechanism behind our effect. Conclusions: Changes in central bank interest rates to meet economic objectives pose a threat to mental health. Mental health support is needed for those in debt and central banks may need to consider how their decisions influence population mental health.

Wealth and depression: A scoping review

“…Wilkinson (2016) found that having greater objective indicators of wealth did not appear to predict depressive symptoms following the 2008 Great Recession, but subjective indicators such as financial strain did. Boyce et al (2018) found that low interest rates were inversely related to depressive symptoms among persons with high-debt but the relation between interest rates and depressive symptoms did not vary significantly by savings status.…”

“…Boyce et al. (2018) found that low interest rates were inversely related to depressive symptoms among persons with high‐debt but the relation between interest rates and depressive symptoms did not vary significantly by savings status.…”

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“…The importance of local and regional economic development bodies and larger economic institutions (eg, central banks and the International Monetary Fund) for population health is increasingly clear. 19 , 36 , 37 Complexity economics Key ideas Conceives of the economy as a complex system, interacting with other complex systems (such as population health and the environment). The focus is on the uncertainty created by constant changes and the characteristics of non-linearities, feedback loops, tipping points, and emergence.…”

“…The importance of local and regional economic development bodies and larger economic institutions (eg, central banks and the International Monetary Fund) for population health is increasingly clear. 19 , 36 , 37 …”

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