The interest rate cut by the Monetary Policy Committee of
the Bank of England didn’t come as a total surprise, like Usain Bolt’s
triple-triple - but some of the BattleAxe’s grumpier interlocutors have been
wondering if it may just prove to be a false start.
The MPC’s reasons sound sensible after our Brexit vote. There are genuine fears, from some, of a
downturn and job losses resulting from that vote. Cutting rates is a classic ploy to encourage
businesses to keep investing and spending, by showing they can borrow
cheaply.
However: what message is this sending out so soon after the
vote? Yes, after a lengthy and bitter
campaign, the economy might have been expected to take a bit of a wobble. Some people seemed genuinely amazed on June
24th that the lights came on, buses ran and overseas companies were
still buying from the UK!
The grumblers’ nagging doubt is that cutting rates right now
suggests the UK is panicking or a sign of an economy that is out of control. Both would be somewhat at odds with the
latest figures on employment and consumer spending – like suggesting GB’s
women’s 470 sailors or Giles Scott would fail to medal with just the last race
to go!
Only time will tell how Brexit will actually impact the economy.
So far, the noises on trade deals from
non-EU countries have been very positive.
Lower sterling makes imports more expensive but also makes exports
cheaper, fuelling British exporters. They may need to reset sights to trade more
actively with the 85% of the global economy that’s outside the EU. However, if we
produce goods the world wants at the right price, that gives us profits to pay
for those imports.
The other question is, will the base rate cut actually make
any difference? Well, of course, it
depends on who you are! The drop may be raising smiles from people with
mortgages, but they are LIBOR linked nowadays, so the cut may not lead to a
wholesale drop in lending rates. After
all, the banks are already muttering more loudly about low margins than some
countries have been about our success in the velodrome.
Sadly, savings rates are almost bound to drop – thank
goodness Mark Carney has come out against negative rates where you end up
paying just to leave your cash in the bank! That’s as attractive a concept as Yorkshire
coming outside the top 20 in an Olympic medal table….
This article originally appeared in Huddersfield Examiner Kirklees Business News on 5th September Titled What Message Does This Send?
