The One Thing You Don't Do Is Nothing

 

Bank of England boss Mark Carney turned into a financial action figure last week and rode into the City slashing interest rates to 0.25%. This was pretty dramatic stuff……the Bank of England has been around since 1694 and interest rates have never been this low.

 

So what’s going on?

 

The UK economy has turned into a bit of a spluttering Ford Escort and the thinking behind cutting interest rates is to inject some turbo fuel into the engine. The concept is pretty simple and well used in the UK……if the cost of debt is cheaper then businesses will be more likely to borrow, to employ, to make stuff and in return, the public will be more willing to ‘spend spend spend’ and avoid steering the Ford Escort into a recession.

 

So that’s the theory, but the reality looks like this:

 

• Savers are stuffed. Their already meagre returns will evaporate further.

 

• The £ against $ is getting hit further as the UK looks even less appealing to Mr and Mrs International.

 

• Pension holders looking to buy an annuity will scratch their head in bewilderment.

 

• There is a little cheer for mortgage holders on a variable rate though (about 50% of borrowers) as they could see mortgage payments reducing……but that assumes the banks pass on the interest rate reduction!

 

And whilst all this goes on, we have a complete lack of action or urgency from the Chancellor who seems happy to ‘wait and see’ until the Autumn rather than be proactive in using the tools available to him (tax cuts, spending incentives, etc.).

 

I am a great believer that “the one thing you don’t do when things aren’t going well is nothing”. Over to you then Mr Hammond!