WHEN the Bank of England last raised interest rates, most people had never heard of subprime mortgages; the Chinese economy was half its current size; and the iPhone was only a month old. Since July 2007 the only changes to the base rate of interest have been downward, and since March 2009 the bank has made no adjustments at all, keeping rates at 0.5% for 77 consecutive months, the longest period of stasis since the second world war (though things were even quieter in the 18th century—see chart 1). On August 6th the bank’s monetary-policy committee (MPC) voted to hold rates steady again. But with more of its members striking a hawkish tone, many pundits expect an increase by the turn of the year. What will it mean when rates rise at last?

It strikes many as odd that rates rises are on the cards. Inflation is stuck at zero, far below the bank’s target of 2%. Wages are growing faster than at any time since 2010, but it is far from certain that such increases will continue. And when central banks have raised rates too early—as the European Central Bank did in 2011—they have done such harm that they have been forced to reverse course. Nonetheless, hawkish members of the MPC argue that unless rates rise soon, inflation will break through the 2% target before long. Among those who are nervous about higher rates are mortgage-holders. According to the European Mortgage Federation, an industry body, in 2013 Britain had residential-mortgage debt worth 81% of GDP, the joint-third-highest in Europe. Worse, more than half of outstanding mortgages in Britain are variable-rate, meaning that they follow the Bank of England’s interest rate. If that were to rise by two percentage points, someone with a 75% mortgage on a house worth £400,000 ($625,000)—the average price of a pad in London—would see their annual repayments increase by £4,000, equivalent to 6% of the pay of the median mortgage-holder in the capital.

But higher repayments will not necessarily lead to a wave of defaults. Standard & Poor’s, a rating agency, points out that mortgage-interest payments as a percentage of income are at their lowest since records began, at 10.6%. Across the country only about 4% of mortgage-holders are really vulnerable, with their total mortgage repayments exceeding 40% of their gross income. As house prices have soared, a Bank of England report suggests, those borrowers who would otherwise have taken on the most debt have decided to rent instead. At the same time, stricter rules that came into force last year have curbed excessive lending.

Things will not get much worse for some time. Rates are unlikely to rise steeply, given the fragility of the world economy. And the government’s fiscal austerity programme will encourage the bank to keep rates low, lest demand fall too far. Mark Carney, the bank’s governor, reckons the base rate will settle at a level “about half as high as historical averages”, or about 2%. Add to that Britain’s shortage of homes, and the housing market does not look vulnerable. Standard & Poor’s predicts that house prices will rise by 5% next year and by 2.5% in 2017.

Higher interest rates will affect different households in different ways. Total personal debt remains higher than the stock of savings (see chart 2). So, overall, higher debt-servicing costs will outweigh the extra money that savers will reap. Worse, wealthy people—ie, those with plenty of savings—have a low marginal propensity to consume, meaning that they spend little of any extra income they receive. All this crimps consumption on two fronts, pulling down overall demand. But in Britain the effect may be muted. To understand why, consider demography. Age shall not weary them In demographic terms, Britain is one of the most unequal countries in the rich world. The wealth of the average 55- to 64-year-old household head in Britain is over five times that of the average 16- to 34-year-old; in Italy the oldies are only three times as rich as the young. On the other side of the balance-sheet, the household debt of British twenty-somethings is about five times that of those in their 50s and 60s. Broadly speaking, old people will gain from interest-rate rises since they are net savers, whereas young people will lose out because they are net borrowers. Wonks reckon that the elderly have a high marginal propensity to consume: they blow extra money on cruises rather than putting it in the bank. The young are more likely to stash away extra cash for the future. Since the gains from higher interest rates will flow disproportionately to oldies, who have the most savings, they are more likely to be spent. Though analysis by the Bank of England suggests that this effect will be small, it may mean that higher rates will not crimp consumption as much as they would in other rich countries.

The end of ultra-low interest rates may bode ill for the productivity of British businesses, which is already poor. Output per hour is still lower than before the crisis of 2007, whereas in America and even France it has grown. Tight monetary policy should be bad for productivity, since it makes business investment more expensive. As the cost to businesses of borrowing has fallen by more than half since 2008, investment by firms has risen by 20%. The worry now is that dearer borrowing will curb the investment binge, making productivity even more dismal.

Yet there is another side to the productivity equation. Kristin Forbes, a member of the MPC, points out that, as in Japan in the 1990s, cheap borrowing may allow inefficient “zombie firms” to survive for longer than they normally would. In Britain interest payments as a share of profits have fallen from about 25% in 2009 to 10% today, bringing down company liquidations with them. As they stagger on, zombie firms hold down average productivity levels in their industry and, as a result, put a lid on wage growth. Rising interest rates could slowly start to sort the wheat from the chaff.

Especially if the Bank of England tightens the monetary screws faster than America’s Federal Reserve, the pound may appreciate rapidly, making firms’ exports more expensive. This, too, will help to zap the zombies, but all exporters will suffer. And the rises in productivity as the inefficient firms go under will come at the expense of higher unemployment in the short term. The end of cheap money is a worry for households and businesses. But as rates move upwards, there will be some upsides too.