Our topsy turvy economy?

Our topsy turvy economy

Britain's economy was said to grow at twice the rate of the ailing Eurozone before Brexit. Figures of UK output rose 0.6% during the months of April to June 2016,while the single currency bloc rose 0.3%.

It also emerged that the 27 nations want to make trade deals once UK quits the EU. 

Besides, after Brexit,tourism to Britain has benefited more with a weak Pound and has led to an 18 % rise in visitors to UK.

What has suddenly caused a seismic shift? 

Since the Bank of England reduced the Bank rate from 0.5% to 0.25 %,its lowest in its 322 history and increased the Quantitative Easing (QE) by £60 billion to £435 billion on 4 August 2016, there is a noticeable unease.

It was expected that the High Street Banks would pass on this reduction to customers,but there appears to be some immediate reluctance as Banks want to boost their buffer reserves.

The public seem to have gone quiet.You don't need a high paid,positioned Governor of the Bank of England to announce a measly reduction in interest rates,which for many mortgage holders would mean an average saving on a 

£200,000 mortgage of £25.00 per month on Tracker Mortgages.

The winners and losers

The biggest losers of this interest rate change are the savers and the pensioners,who are the backbone of the Tory party support

Cutting borrowing costs is fine if there is no risk aversion built in by market

makers. 

Boosting QE means well, if there are takers.It can cause an extra 250,00 people to lose their jobs, because of the uncertainty.

Lower rates make pensions more expensive.

Lower rates make risk appetite unappealing.

Lower rates - if ever there was necessity for a further cut will damage the side effect of monetary policy,meaning more unrealistic burdens on employers.

Banks struggling to survive may have occasion to charge customers for use of banking services.

The biggest winners of the rate cut are the Property Investment market. Property investment is widely expected to lead to some big profits.

Those storing cash,risk seeing its value fall over time.Weaker sterling means bricks and mortar is cheaper.,particularly for international investors who want to squeeze the UK market.It is great news for developers and sellers.

For borrowers it will take time for any benefit to trickle down,as borrowing reached a 11 year high before the EU Referendum. 

Where to build?

Everybody talks about building more houses in London. But if the Referendum came out with one single lesson, it was that not much was being done outside of London that caused the revolt against the Establishment.

The Northern Powerhouse,(promoted by George Osborne the last Chancellor of the Exchequer) has been thrown into question in the light of Theresa May's rise to office and perhaps of her insistence on a broader industrial strategy. 

The North of England's growth has clamoured for investment. Improving the clapped out infrastructure,roads,railways,housing, improving wages, will have to take precedence.As someone said: "Quite frankly,there ain't nothing happening at all",at present." 

The fallout of the Brexit Referendum will come to haunt the Tories and Labour alike. Is it too early to contemplate a coherent plan of regional development?

Victor Cherubim