Is The Economic Straightjacket Tightening?
This week saw the largest weekly decline in two year UK government debt notes for 14 years with traders concerned that the recent spate of interest rate reductions in the UK may be at an end. The move was prompted after the Bank of England’s recent review of inflation which suggested that the rate could nudge towards 4% in the short term.
Many experts believe that we are unlikely to see any more interest rate reductions for some time as the economic straightjacket around Gordon Brown continues to tighten. The implications longer term indicate an increase in the cost of borrowing for the UK government with higher inflation likely to bite into the ‘real yield’ (i.e. the base rate less inflation).
This could not have come at a worse time for Gordon Brown as he piles more and more debt onto the UK economy in order to ride the current storm. Even after the recent reduction in growth forecasts for the UK, many still believe that the government are still over optimistic â€" with even the European and World Banks concerned.
Higher interest rates will reduce the strength of the expected bounce in the UK economy when it does bottom out and recovery may take a little longer than first thought.
Share this..
Related stories
Free banking is disappearing at an alarming rate
As we hear news that Egg, the Citibank owned credit card brand, is set to reintroduce an annual fee for holders of the company's credit card it appears that the days of free banking in the UK are fast disappearing. While there are those who believe that free banking was never actually available in the UK, with UK banks using consumer deposits to fund their other operations, we will start to see th...
Read MoreBank of England keeps base rates on hold
As expected, the Bank of England today confirmed that UK base rates will remain at 0.5% for the foreseeable future. While this was fully expected by analysts and observers, there was an interesting turn with regards to the quantitative easing program which has been in the headlines of late. Many people had expected the UK government to be on the end of a request from the Bank of England for a furt...
Read MoreUK government to withdraw tax relief on childcare vouchers
Gordon Brown recently announced that the UK government will be withdrawing tax relief on childcare vouchers much to the dismay of working families in the UK. While the money saved will be used to increase the number of childcare places available across the UK there is growing concern that families most in need will potentially be forced to give up their employment to look after their children.
London named world city of commerce
London has been named as the world's leading commercial hub, overtaking New York as the premier financial centre.
New research from MasterCard Worldwide places the UK capital at the top of a list of the world's 50 most influential cities on the global economy.
The panel of leading economists that compiled today's index praised London's flexibility as an operating environment for...