The Bank of England have just announced a number of actions it is taking to try avoiding the recession now predicted following the vote to leave the EU.
The key actions are cutting interest rates to a record low of 0.25%, from the 0.5% level that has remained since the finanical crisis in 2009, and an additional £60 billion of quantative easing – in plain English this is basically where the Bank creates more money – taking the total amount of easing since the financial crisis to £435 billion.
Why has the Bank of England done this?
The Bank has reacted to early indications following the vote to leave the EU that a recession is starting, as was predicted likely before the vote.
Taking into account the actions it announced today the Bank is now forecasting that growth will be flat (ie: 0%) for the rest of this year, will only be 0.8% in 2017 (the 2017 forecast was 2.3% in May), and 1.8% in 2018 (again the 2018 forecast was 2.3% in May).
The Bank is also forecasting that the UK unemployment rate, which is currently 4.9%, will increase to 5.4% in 2017 and 5.6% in 2018.
They have also stated that if their forecasts are correct over the next few months then they are likely to reduce the interest rates further to practically zero.
These announcments have caused the Pound to fall again against the US Dollar and the Euro, which was to be expected, however both still remain higher than their lowest point since the vote to leave the EU.
What does this mean for the average Swindonian?
We’re all doomed I tells you! (way to manage expectations – Ed)
Actually there will probably be little noticable difference in the short term and it is too early to accurately predict the medium to longer term impact on the average Swindonian.
In the short term any Swindonians on a variable rate mortgage should see a small reduction in their monthly payment, and unfortunatly any Swindonians on a fixed rate mortgage will see no difference in their monthly payment.
And if you’re among the lucky few Swindonians to have savings then I’m afraid your misery of very little returns over the last six years just got a bit worse.
The predicted increase in unemployment over the next couple of years is no where near that of the financial crisis when it jumped from 5.0% to 7.8% in the first year and peaked at 8.4% in the third year following the crisis.
It is more likely organisations just won’t replace some positions when people leave a role rather than run big redundancy programmes, although some sectors will be more susceptible than others with construction jobs looking a bit more at risk.
Also the continued low exchange rates for the Pound against the US Dollar and Euro means that goods bought from abroad will still cost more and any Swindonians going on holiday will still get a bit less for their money.
Basically, if the Bank of England have made the right calls today they will have taken action early to ensure that not much changes versus the last two months… but we’ll have to wait and see if they are the right calls!
