What’s in store for the UK economy?
Over recent months the Bank of England and the Monetary Policy Committee have faced a tough decision when it comes to setting interest rates. This is because on one hand the central bank needs to be very cautious about cutting the baste rate because of rising inflation, but on the other hand the bank needs to cut the base rate in order to boost the slowing economy.
Whilst the Bank of England has cut the base rate three times since December, taking the rate from 5.75% to 5%, it decided to leave the rate unchanged for May following the recent MPC meeting. However, this is a decision that has been attacked by various industry sectors, including the British Chambers of Commerce, which has predicted an extremely gloomy economic outlook for the nation over the coming eighteen months.
According to a report from the BCC the economy is set to suffer more than had been originally predicted over the coming eighteen months, and consumer spending levels are set to be affected as a result of rising costs and repayments, which has in turn resulted in the BCC cutting its annual growth forecasts for next year from 2% to 1.6%.
An official from the BCC said: “The longer the Monetary Policy Committee waits now, the bigger the danger that the situation would deteriorate and the policy choices would become more difficult and more unpleasant later in the year. Waiting unduly before easing further would pose unacceptable threats to growth.”
After the Bank of England announced that it was keeping the base rate unchanged the BCC said that the decision was a mistake, stating that a rate cut could have really helped to boost industry and consumer confidence, which in turn could have helped to boost the economy. However, officials from the BCC are now concerned that the economic outlook continues to get worse as a result of the base rate remaining static.
A recent report showed that manufacturing output fell by 0.5% in March, although the first three months of the year saw output increase slightly by 0.3% compared to the final quarter of last year. The drop in March is another indicator of the slowing economy according to officials, with one official stating: “Just as these are weaker compared to expectations, they were significantly stronger compared to expectations in January and February. Nonetheless, it is another soft economic reading for March and it suggests the slowing in the economy is gaining traction.”
One official commented on recent figures relating to retail sales, stating: “We continue to have our doubts about how accurate a picture of high street demand the official figures are giving. Just about every other indicator… has weakened much more sharply. And this more gloomy picture sits far more comfortably with the plummeting level of consumer confidence.”
Recent additions:
- Start of year sees insolvency levels rise
- Credit crunch leads to increase fraud on finance applications
- Lenders need to be more cautious
- Is debt consolidation the answer?
- CAB still dealing with many debt enquiries
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