Interest Rates Indicate Uncertain Economic Future for Britian
By admin November 3, 2017

The National bank of England has announced that it will raise interest rates for the first time in almost 10 years. This change in monetary policy may be indicative of increased confidence in a post-Brexit economy.  However, some analysts say otherwise. While the initial economic shock of the Brexit vote has been wearied, analysts say that interest rates were raised so as to create a cushion for future economic downturn. Decreasing interest rates is a monetary policy often used to provide economic stimulus following a shock, as what happened following Brexit when the National Bank announced a decrease in interest rates.

The road towards withdrawal from the European Union (EU) has been long and fraught with problems. Almost 50 percent of Britain’s trade is with EU countries. Removal from the EU will come with increased tariffs and barriers to exchange with former free-trading partners. Economic indicators pointing to decreased economic conditions are clear. Despite increasing growth rates globally, domestic activity remains stagnant.

To make matters worse, the British pound has been devalued relative to other currencies, as the value of the English shilling relative to the US dollar fell by 11 percent since the vote of approval to leave the EU. Future expectations regarding trade tariffs exacted on English exports to the EU have pushed the projected value of the shilling relative to the euro down by 15 percent. Currency devaluation has caused inflation to rise nationally, with inflation rates at three percent annually.

Impending economic upheaval can hopefully be deterred with progress on trade deals with the EU, which will allow Britain to continue their status as privileged trade partners.  British exports including pharmaceuticals, banking services and automobiles are not currently susceptible to any tariffs within the EU, but after December 2019 – the marked date of British secession from the EU – without a trade deal England may no longer enjoy its status as a privileged trade partner. Such deals are necessary, as current global corporations reconsider their decision to centralize operations in the U.K. Banks in Britain, which currently provide banking operations to Western Europe, are losing clientele as banks are inking deals in Paris, Frankfurt and other economic capitals within the EU. The British Prime Minister, Therese May, hopes that talks will begin as early as December, as corporate bodies begin developing business strategies and contingency plans in the fourth quarter to prepare for the next fiscal year. If a trade deal is not passed, then England is likely to fall into a recession.

Peter Urwin, director of the Centre for Employment Research at Westminster, says the likelihood of a successful trade deal is uncertain. Interest rate hikes, induced to ensure a cushion for future economic downtown have done nothing to improve economic conditions now. Tightening access to credit in an already frugal market has assuredly not incentivized investing. The future of the British economy likely rests on the success of upcoming trade talks, so it is with baited breath that those in England consider their economic future.

Further Reading:

What’s the Economic Cost of Brexit? Pineapples Tell a Tale

In Raising Rates, Britain’s Central Bank Issues ‘Brexit’ Warning

Brexit Pushes Up Office Rentals in Frankfurt

 Brexit Transition Deal Will Require New UK Legislation: Minister



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