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The UK is basically in the same economic position as the US. Plus we have a currency that's starting to collapse, and spiking energy costs. And serious political issues that will likely become economic issues very soon (starting a trade war because nationalism for instance). And we are much less competitive.
The BoE has very few other options at this point.
The lack of energy and weaker currency are such significant detriments that it's probably not safe to say it's in the same economic position to begin with.
Very dangerous for europe, but still noteworthy. Countries like China and Russia are in similarly uncomfortable positions and they're LOWERING their interest rates to try and stay afloat.
I think the US has an advantage over the UK because they just get on with it. Energy prices are high? Better explore and find more energy.
I think the EU has an advantage over the UK because they plan and regulate. Energy prices too high? Get more nuclear back online, ban public aircon, ask the LHC to close a month earlier than usual.
The UK just can't bring itself to do anything, so it throws money at problems. Then the problems get worse. Then it wonders why it has huge debt AND big problems...
The US has plenty of energy. We're an energy exporter.
Well the (likely) recession is due to inflation. Raising interest rates can lower inflation so there is sense from that pov. Although the cause of the inflation is well known so I'm not sure raising interest rates will do much except raise the exchange rate.
At the end of the day though, interest rates are low relative to historic norms.
We're going to replace an inflation driven recession with a high interest rate caused recession. I won't pretend I know the difference, but there will be a recession either way.
Rising interest rates should help the exchange rate. But it doesn't solve the core issue, it just moves the pain from importers to borrowers. Personally, my own ignorance makes me think that we'd regain productivity if we let the rate fall further (punishing importers, rewarding exporters) rather than increasing rate (punishing borrowers, rewarding lenders). But again, I am no expert and for most people it will make little difference (it just turns inflation of food/fuel prices into inflation of rent/mortgage payments plus a load of job loses).
Either way, we're in for a lost decade because we have spend a decade making decisions that cause lost decades...
Well the recession were looking at is mild. So inflation seems to be the bigger danger.
Rates were at 0.1% at the start of the year. I'm not sure that's particularly healthy, and they've been at that level since 2008(?) So haven't borrowers and exporters been rewarded enough?
I've seen a few people say it will be a mild recession. But I don't know what that's based on?
Fuel/energy prices will remain high, and will only rise once government support is withdrawn (or taxes rise or spending falls to make it permanent). This will only get worse as the recession continues to push the pound down against the dollar.
We have an on going housing crisis that won't get any better when high interest rates reduce demand for new housing and that stops building. And construction is a major employer so expect some feedback there.
We have a huge deficit and debt pile to try and deal with, so there is no chance of a government spending spree even without the idiotical issues with a conservative government.
This makes no mention of the damage from Brexit that is finally starting to become apparent or all the long term issues we have (aging populations, issues with china, lack of investment in social capital or infrastructure).
Looking at all of this, it looks like "chickens coming home to roast" in 10 different ways all at the same time to me.
May I ask what gives you hope?
I mostly agree about rates having been very low for a long time. Though I'd say having a high pound despite that means exporters have not had an easy time.
As I understand it fuel prices have stabilised / falling. The reason prices jumped is because Europe was rushing to fill it's storage which is now virtually full. And there's a long term cap anyway, because high prices will just bring about alternatives.
Re recession forecasts, I don't really know enough to comment, they do end up being fairly accurate though.
I agree that Brexit is a long term bad thing. Unfortunately I never expected the big Brexit recession, it's just going to be a slow down in growth where we get further and further behind the rest of Europe.
What gives me hope? We had the biggest financial crash in a century only 14 years ago and we got through that. We had a global pandemic that basically shut down the economy, we got through that. We are still a prosperous country and we'll survive this crisis.
Exactly. Most of the population wouldn't even notice a 1% recession. 10% inflation on the other hand...
The UK is in a really bad shape. The rest of the EU and the US are doing fine.
Inflation in UK is 8.6% while interest rate is 2.25%. Interest rate should be higher than inflation. It is really similar economic position. Government trying to print out of debt.
I don't think the Taylor rule says interest rates should be higher than inflation. It seems like it's dependent on the weights you pick. Historically it's not been true either. If that is some implication of the formula I'm not gleaning, then please spell it out.
There is a monetary component to inflation and a non monetary component to inflation. If energy prices go up, that doesn't mean the government is doing deficit spending in excess of what the economy can handle, it can mean that OPEC is colluding or an important fossil fuel trade relationship between countries crumbled. That doesn't mean there isn't monetary inflation, surely a positive interest rate is justified for now but I don't think it has to go all the way to 8.6%.
The Fed has stopped reissuing defaulted loans and is removing nearly $100B of liquidity per month. I think more significant than the interest rate is the amount of money being removed from the supply.
The Bank of England is raising rates to try and dampen demand, meanwhile later today the Government are having a "mini-budget" where they will cut taxes to try and boost demand.
Mr Left Hand, may I introduce you to Mr Right Hand.