Economically and politically eventful summer is over. Those who managed to get away, paid more for holidays this year and may have already started longing to the times more rewarding for British pound. It has been estimated that average holiday maker lost 500 pounds on currency exchange and prices abroad.
The impact of Brex
it, despite many speculations, was not quite as predicted by many. The Bank of England itself argued beforehand that in the aftermath of Brexit interest rates would rise. A little bit embarrassing for the Bank, or political, as it turns out, but pointing to larger problems on European stage and revealing once again how complicated and unpredictable economy can be.
As tools in achieving government’s social and economic goals, interest rates can be manipulated to the benefit or disadvantage of working class or rich elite of the society, playing at the same time stimulating or discouraging role to the business. The lowering of interest rates will therefore dampen the spirit of saving, encourage spending and business investments. This will make life harder for pensioners and poorer members of the society by reducing their income almost to nothing, while allowing the rich to thrive. Prices of goods will go up which may be positive to the business but eventually leads to currency devaluation and consequently to inflation. For years now British pound has been falling (about 30percent since the increase in interest rates in 2007 and with Brexit by about 10percent). Further drop is certainly not intended. So should the Bank have made the cut?
There are already schemes in place to control inflation, for example by keeping prices at the same level and shrinking the content of sold package (selling less for the same price). This new game is catching on quickly, signs of inflation are however there, and according to the OECD report (Organisation for Economic Cooperation and Development) inflation is constantly rising for most industrial countries.
Lowering and introduction of negative interest rates can be used by Banks as a measure to stabilize fragile economy. Mainly aimed against institutional investors but affects everyone, this tool has already been brought in Europe (Switzerland) and is well considered by the Bank of England. On the other hand, lowering interest rates means cheaper mortgage and if the rates stayed low, this could eventually make owning a property possible for many. So far however rental business has been experiencing its highs with rents constantly going up and faster than wages and official inflation rate. Many young people cannot however afford to rent a place let alone to own. According to Equality Trust, nine out of ten tenants don’t have and won’t ever have saved up 5 percent for deposits in cash, needed for a home worth £180.000. They will continue living with their parents as cutting interest rates did not create new jobs but higher costs of living.
Low interest rates - not as good as meant to ?