BRITAIN is no longer “first in, worst off and last out” of world recessions, Gordon Brown, Britain’s chancellor of the exchequer (finance minister) boasted in his Labour Party conference speech last month. Even as he spoke, the British economy was completing another robust quarter, growing by 2.3% at an annualised rate, according to figures released on Friday October 24th. But as a consequence of being best off and first out of the global slowdown, Britain could also be the first major economy to raise interest rates. Indeed, the Bank of England’s first interest-rate hike for three-and-a-half years may come as soon as November.

According to minutes released this week, four of the nine members of the Bank of England’s monetary policy committee voted to raise rates at their last meeting, on October 9th. Only the deciding vote cast by the Bank’s newish governor, Mervyn King, kept rates on hold. No one, not even those expecting a tightening before the end of the year, expected the October vote to be so close. J.P. Morgan, for example, reckoned the vote would be 7-2 against.

In theory, past votes should be no guide to future votes. The Bank, when it meets to decide interest rates, should take account of everything known at that time. Its decision should leave the economy evenly poised between undershooting and overshooting its inflation target of 2.5%. When it congregates again on November 6th, the monetary policy committee will be responding only to “news” that it could not foresee in October. What cannot be foreseen can, by its nature, go either way. In theory, then, November’s votes could go either way. But in practice, the balance of votes does send a signal that a rate rise is imminent. The four committee members who are now sanguine about growth, but worried about improvident borrowing and unsustainable house prices, will probably stay that way. And one or more of the other five will probably either stop worrying about growth or start worrying about debt.

In the six years since the committee first met to set interest rates (which were set by the government until 1997), consumer debt has grown by about a quarter. Britain’s households now hold debts worth near 120% of their income (see chart). And they are still intent on spending, not saving, that income. Retail sales grew by 0.6% last month, an annual pace of over 7%.

But Britain’s debtors are not, on the whole, credit-card-abusing shopaholics blowing their borrowings on the high street. They are, mostly, homeowners, taking out mortgages to pay for ever-more expensive houses at cheaper-than-ever interest rates. In a self-reinforcing cycle, growing demand for mortgages is pushing up house prices, and rising house prices are pushing up the size of mortgages. Moreover, mortgages are not only getting bigger; they are also more widespread. Rob Hamilton, a researcher at the Bank of England, reckons this spread of homeownership is one of the main factors behind the frightening debt figures: Britain now has more households with debt, not more debt per household.

Some on the Bank’s monetary policy committee fear that Britain’s borrowers are suffering from interest-rate myopia. Several years of low interest rates may have lulled consumers and mortgage-buyers into a false sense of security, wiping from their memories a time (over a decade ago) when short-term interest rates could be in double digits, or even a time (over three-and-a-half years ago) when rates could go up as well as down.

Those borrowers not suffering from myopia may be duped by “money illusion”, failing to take account of inflation when gauging their tolerance of debt. Inflation erodes the real value of debt. When inflation is low, as it has been over the past decade, the real value of debt may be higher than some, money-deluded people realise. Inflation is the debtor’s best friend. In the late 1980s, for example, consumer borrowing was growing even faster than it is now. But back then, money income was rising by around 10% a year, thanks to high inflation, not 4% or 5% as it is now. Some in the Bank fear that people are trying to party like it’s 1989, despite the more austere, hard-money environment of 2003.

When the Bank cut rates in July, it may have reinforced the myopia and stoked the housing market still further. But it thought it was worth it in order to take out insurance against the risks posed by a struggling world economy. Now the world economy is recovering, the Bank no longer wants the insurance. Nor is it willing to pay the “premium” of a potentially unsustainable housing and consumer boom.

But the Bank needs to be careful. Lifting rates amounts to a pincer movement on the insecure financial positions of British households. Mortgage rates will rise; at the same time, house prices may fall. Households may suddenly discover that their main asset is worth less and their debts are more costly to service. Wynne Godley and Alex Izurieta, of the Levy Economics Institute, fear that when households begin to feel overstretched their spending will snap back sharply, as it did in the early 1990s, bringing Britain’s happy years since then to an abrupt end. The Bank is not quite so alarmed. But several of its committee members do seem to feel that by acting sooner rather than later, they will have to do less. An upward nudge in interest rates, and the consumer boom will ease off, saving will edge up, and the ratio of households’ debt to income will stop rising quite so fast. By moving now, the pincer need not close too tightly.

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