View the article online at http://citywire.co.uk/money/article/a534688
Rebooting the UK economy: the options remaining
‘Monetary and fiscal policy in the United Kingdom can only do so much,’ Mervyn King said last night. But is the UK really out of options?
‘Monetary and fiscal policy in the United Kingdom can only do so much,’ Bank of England governor Mervyn King said last night. But is the UK really out of options?
An economy off the rails
As King said, the UK economy has ‘gone off track’.
Domestically there aren’t enough jobs, and those people who are employed aren’t seeing their wages rise – or certainly not enough to keep up with rising inflation, which shot up to 5.2% on the CPI measure in September.
Rising inflation means that savers and investors are hard pressed to prevent their money losing its value. Inflation will fall back, but until it does it remains particularly painful for pensioners who depend on a regular income. Nor are annuity rates doing the retired any favours, worsened by the impact of quantitative easing.
Those who have yet to buy an annuity, such as people nearing retirement age, will see that pension schemes are increasingly falling into deficit as stock market declines take their toll.
Meanwhile, the pressure on households grows. Utility companies, in pursuit of record profit margins, will stretch household budgets to their breaking point over the coming months with their double-digit price hikes.
None of this is good for consumer confidence, which has resulted in less spending on the high street, where sales figures have been fairly flat. The embattled retail sector now also says it faces a £350 million jump in bills next year as a result of yesterday’s inflation reading.
The only really good news for consumers, according to Howard Archer of IHS Global Insight, is that the Bank of England is clearly not going to raise interest rates for a long time. Great for borrowers, but savers are subsidising them.
This is framed by the European, and global, crisis, which poses a threat to UK exporters, and makes for poor-performing financial markets. Here though, there has been some good news, with Office for National Statistics figures showing that exports by UK companies rose to £25.5 billion in August, the most since (comparable) records began back in 1998.
Economists are doubtful that will last though. So much depends on European leaders’ ability to fix the eurozone crisis, with this weekend’s summit a potential turning point.
This uncertainty, coupled with weak domestic demand, means that UK business investment remains below its pre-Lehman peak, according to a report from Ernst & Young’s respected ITEM Club economists today.
During all of this, politicians and policymakers have embarked on a scorched earth policy, seemingly unleashing the entire economic arsenal. What is left to them?
News sponsored by:
Here at BlackRock, we help investors make more out of commodities with a range of innovative, flexible and resilient investment strategies.
From Brazil and Mexico, to Vietnam and Nigeria, the rapidly developing economies of Latin American and frontier markets, which are some of the smaller, less developed economies in the world, provides investors with a wealth of potential opportunities. Discover why BlackRock's investment trust range is well placed to help you make more of these exciting regions.
In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
More about this:
More from us
- Osborne says no tax cuts as S&P confirms UK's AAA rating
- Desperate US protectionism against China will backfire
- UK inflation shoots up to 5.2% after energy price hikes
- Bank of England points to QE2 inflation dilemma
- QE2: what it means for you and your money
- Savers subsidise homebuyers by £100 billion a year
- Chart of the Day: could exports really save the UK economy?
- Energy crackdown as Big Six profit margins rise 700%
- 10 threats to China’s economy
- Chart of the Day: how the Bank of England saved us
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.