The new Governor of the Bank of England is no doubt diving into his in-tray as I type (or diving out of the window)!
Will the base rate stay at 0.5%? Has it had any effect? Hard to say really because the average borrower doesn't get anywhere near that as the banks build up reserves. So, borrowing is cheaper but not as cheap as it could be therefore consumer spending is down. Savers have suffered as they don't get as much from their savings therefore consumer spending is down.
Quantitative Easing has a deflationary effect, builds a future debt for government to pay back and reduces interest payments from bonds so commodity prices rise and private pensions reduce therefore consumer spending is down.
Smaller companies still struggle to get finance, even if they have signed orders many are having to turn the work away which strangles growth. It also causes them to invest what they do have in protective measures i.e. they hire cheaper labour, people they can get rid of quickly if they need to, people who are often NOT from the UK. Foreign workers are often here because after a few years they can go back to their own country well set up. They spend as little as possible while they are here and send as much as possible back home so guess what? Yes, consumer spending is down.
The government has limited degrees of freedom - mainly reduce government spending or increase tax revenues as the deficit is pretty much flat (I know recent reports show it reducing but it's too soon to confirm that as a trend). Overall then the government is still borrowing. Tax revenues would rise if growth improved (or we got charged more), spending would go down if austerity went to another level. The former is slow while the latter is deemed political suicide.
Overall, Mr Carney, I wouldn't want your job!
Will the base rate stay at 0.5%? Has it had any effect? Hard to say really because the average borrower doesn't get anywhere near that as the banks build up reserves. So, borrowing is cheaper but not as cheap as it could be therefore consumer spending is down. Savers have suffered as they don't get as much from their savings therefore consumer spending is down.
Quantitative Easing has a deflationary effect, builds a future debt for government to pay back and reduces interest payments from bonds so commodity prices rise and private pensions reduce therefore consumer spending is down.
Smaller companies still struggle to get finance, even if they have signed orders many are having to turn the work away which strangles growth. It also causes them to invest what they do have in protective measures i.e. they hire cheaper labour, people they can get rid of quickly if they need to, people who are often NOT from the UK. Foreign workers are often here because after a few years they can go back to their own country well set up. They spend as little as possible while they are here and send as much as possible back home so guess what? Yes, consumer spending is down.
The government has limited degrees of freedom - mainly reduce government spending or increase tax revenues as the deficit is pretty much flat (I know recent reports show it reducing but it's too soon to confirm that as a trend). Overall then the government is still borrowing. Tax revenues would rise if growth improved (or we got charged more), spending would go down if austerity went to another level. The former is slow while the latter is deemed political suicide.
Overall, Mr Carney, I wouldn't want your job!
