By contrast in a low interest rate/ low inflation world it is possible to

By contrast, in a low interest rate/ low inflation world it is possible to do jobs really well. The Victorians built to last for ever, not because they had some temperamental imperative to do so, but because they could borrow the money cheaply.For ordinary people, the low interest rate environment should have similar effects. There is much less likelihood of losing money by keeping it on deposit. You have to pay the high rate of interest from day one, whereas by the end of the loan those same nominal payments have become very small in real terms. Anyone who took out a mortgage in the late 1970s or early 1980s will have experienced this.The effect of this "front-end loading" is to force quick pay-backs.

But a high inflation/ high interest environment is different to a low inflation/ low interest rate period because mathematically high interest rates load the burden of repayment on to the early part of the loan. Gradually a more stable financial environment will affect company behaviour. The promise of low inflation is less persuasive than the actuality of low long-term interest rates. Once companies can raise 20-year funds at, say, 6 per cent, they will start to find projects which yield, say, 12 per cent attractive again.There is a further point here, for the issue is not just a transitional one between high and low inflation periods, or of positive or negative real interest rates, or even of uncertainties about the transition from one condition to another. High interest rates and high inflation go together, so in theory real rates of interest can be positive or negative under each condition. Low interest rates mean cheap money on investment, but low inflation means lower returns on that investment.

The Bank of England has criticised British industry for failing to downgrade its expectations of what an acceptable rate of return might be. This gap is very profitable, so in an ideal world they need lots of changes in rates. But a world of lower rates will also, in all probability, become a world of more stable rates, so the opportunities for exploiting this gap will be much reduced.There will be a more general impact on the company sector. At the moment the building societies earn a lot of their profit from the timing of interest rate changes: when rates come down, they announce a cut in loan rates ahead of a cut in deposit rates. But actually they impose the cut on deposit rates before the cut in loan rates When rates go up, the reverse happens.

So banks have to find other sources of income: witness the way they now charge fees for services they used to deliver free.There are other, similar effects. Interest- free money is much less profitable in a world where interest rates are in low single figures than one where rates are in mid-teens. From the point of view of the financial institutions, low interest rates mean that they have to earn their money in different ways. It is not just those credit card rates that will seem increasingly ridiculous; there are more technical changes in the world of finance which low and stable interest rates will bring.The most obvious example is the decline in the endowment effect of the interest-free current account balances held by the clearing banks. But it is a killer if house prices in 25 years are going to be no higher in money terms than they are today.As for credit card rates, some of them already seem outrageous.

This month's Which? survey on credit cards reported interest rates ranging from 14.5 per cent to 29.8 per cent - yes, 29.8 per cent.Adjusting to the idea that the normal range for base rates will be perhaps 2.5 to 7 per cent - and that good-quality borrowers should be about to obtain loans a couple of percentage points above that - will be one of the big changes in perception which we will face.Some of these changes are clear enough. But the idea of zero inflation is not so odd if you recall recent behaviour of prices here and abroad.It's not just a question of British house prices being lower than they were in 1988. Lots of other prices have come down: the oil price, telephone calls, just about any form of electronic equipment, and so on We talk as though inflation were a normal condition. People still expect annual increases in salary (though these days they do not necessarily get them).