A final note about interest rates
Tony Ward is chief executive of Clayton Euro Risk
At the risk of boring everyone, I regret that I am compelled to write another blog on the topic of interest rates.
This weekend, an article by Andy Haldane, the Bank of England’s chief economist, outlined his defence of the Bank’s decision to reduce its benchmark interest rate to 0.25%.
He suggested that the move was made to cushion the economic blow of June’s vote to leave the European Union.
My views on what tangible benefits a rate-cut alone can bring are well documented, as reiterated in last week’s blog, so I won’t go back over that ground. No, my real issue with Mr Haldane’s comments was his suggestion that the Bank’s move was an attempt to save ‘hundreds of thousands of jobs’.
He argued that failure to respond to the fallout from the referendum would have resulted in economic damage.
“Although I have enormous sympathy for [savers’] plight, the decision to ease monetary policy was, for me, not a difficult one,” he said. “According to the Bank’s estimates, had policy been left unchanged, it was likely to have resulted in hundreds of thousands of people losing their jobs, many of them among the 10m people in the UK without savings.”
Really? Sounds like there’s scare mongering going on here. From which sectors and industries are we to lose all these jobs?
Recent data from recruitment agency Reed showed that the number of jobs advertised last month was higher than at the same time last year.
It can’t be denied that there are mixed messages about the economy, so the Bank is right to keep a weather eye on proceedings.
However it’s not all doom and gloom. For example, figures last week revealed that Britain’s retailers sold more in July than during the same period last year, defying post-Brexit slump predictions. Total sales increased by 1.9%, according to the British Retail Consortium (BRC) and KPMG’s latest survey.
Helen Dickinson, chief executive of the BRC, said the rise was not surprising, given that ‘little has materially changed’ for most UK households since the vote.
Further figures regarding retail sales to be announced this coming week are also expected to show a rise in July, so perhaps consumer confidence has not been dented to the degree that some predicted.
“The consumer sector has remained resilient which greatly reduces the chances of the UK slipping into recession over the second half of the year,” concluded Andrew Goodwin of Oxford Economics.
While you can argue that consumers don’t always respond to downturns in the economy immediately, these numbers are positive. And, more than anything else, positivity is what we need right now.