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Sterling has today picked up sharply after weeks and weeks of pressure and selling by investors. This comes just ahead of the MPC meeting to decide their next move on UK base rates and until just a...
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Wednesday 3rd September 2008
While many countries around the world have a number of tools at their disposal with regards to kick starting an economy, the UK way has always been to use the stick of interest rates to beat life into or slow down the economy. But what other options do they have at their disposal?
Aside from interest rates the main tool the Bank of England has is the ability to increase and reduce liquidity to money markets. There is also the very subtle, but very powerful, use of suggestions to flag possible future changes to the market and the chance that this could actually boost confidence by suggestion alone – while this would have to be backed up by action, suggestion is a very powerful force in investment markets.
We have seen the Bank of England come forward with a number of rescue proposals over the last few months but the problem now is the fact that the money pot is empty – rising investment in public services and a falling economy have literally pushed the UK into debts which total over £500 billion. In theory this may sound a lot but in the real world it is not something which will cause an awful lot of sleepless nights in the future.
Interest rates have been and remain the key to the UK economy – they are blunt but they work, when the Bank of England has room for manoeuvre. |
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