This weeks policy update looks at the continued uncertainty over the Bank of England's decision over the future rising of interest rates, with supplementary features on inflation figures, unemployment figures and the British Chambers of Commerce outlook on the 'Cutting Red-Tape' report published on Thursday.
Carney: Eurozone will not impact MPC decision over interest rates
Whilst the British economy continues to grow at a stable rate, uncertainty in the Eurozone will not dictate when the Bank of England make a decision on increasing the interest rate, according to the Governor, Mark Carney.
Up until the second quarter this year, prospects for many emerging economies in the Eurozone and beyond looked good, however the last two quarters have seen in a dip in projections, triggering some to state that a rise in interest rates would be damaging and have a detrimental impact on business confidence, however Mr. Carney disagrees.
He stated that the Monetary Policy Committee (MPC) are keeping a close eye on the situation in the Eurozone, yet stressed that its performance is not intrinsically linked to the performance of our own economy, emphasising instead, "that the only difficulty that is caused by Europe is that it provides additional drag."
Commenting on Mr. Carney's statement, Mike Ashton, Chief Executive of Herefordshire & Worcestershire Chamber of Commerce, said: "It is true that Britain's economic recovery has been led largely by developments made within these borders, with the strength of the eurozone not directly impacting the strength of our own economy. That withstanding, we are inextricably tied to the eurozone and with that in mind, caution does need to be shown to the performance of European and emerging economies that we have trading ties with. To this end, Mr. Carney and the MPC should not completely discount their performance when deciding when is the right time to increase interest rates.
Inflation falls to five year low
With the Governor of the Bank of England, Mark Carney, giving strong indications that interest rates will rise by the Spring of next year, the fact that inflation has fallen to its lowest rate since interest rates were put to 0.5% is a concern.
The Consumer Price Index (CPI), who measure inflation rates, have released figures showing that the current inflation rate of 1.2% is the lowest it has been since September 2009, when the figure stood at 1.1%. The CPI is the rate that the Bank of England is charged to keep inflation, with the 2.0% the desired rate.
The abnormally low inflation rate does not correlate with Britain's status as the fastest growing economy in the developed world. Usually economic growth facilitates at least a certain level of inflation, yet Britain is still not receiving any inflationary pressures, as many thought it would.
Commenting on the figures, Mike Ashton, Chief Executive of Herefordshire & Worcestershire Chamber of Commerce, said: "Whilst the business community acknowledges and accepts that the 0.5% interest rate will soon be rising, the continued lack of inflation calls into question Mr. Carney's statement on the rise coming by spring. To ensure that business confidence is not dampened, and the economic recovery is not harmed, the Monetary Policy Committee should heed warnings that an earlier than planned rise could be hugely damaging."
Unemployment falls to 6% in record lows since 2009
Over the summer, Britain’s jobs market powered ahead with unemployment falling to 6% – its lowest in almost six years. The steep fall in joblessness suggests momentum in the labor market was maintained over summer. With vacancies climbing to 674,000 in the three months from July to September, just shy of the early 2008 peak, unemployment is likely to fall further in the months ahead.
Unemployment and inflation at multiyear lows intensifies the dilemma for the Bank of England. The strong jobs market points to a normalizing economy that no longer needs extraordinarily low interest rates of 0.5 per cent, while low inflation suggests the tightening labor market is not leading to price pressures yet.
With regards to local statistics, the figures are having a positive impact on the amount of people claiming Job Seekers Allowance. Claimant count decreased by 326 claimants to 5,452, which is 7,817 lower than its peak in August 2009.
Commenting on the figures, Mike Ashton, Chief Executive of the Herefordshire & Worcestershire Chamber of Commerce, said: "Local and national unemployment figures have been continually falling every quarter, and when considered with the falling claimant count, it shows that great strides are being made to get people back in work across the country. This trend is being replicated here in Herefordshire & Worcestershire. Our latest Quarterly Economic Survey results show that the two counties are ahead of the national average on both attempts to recruit and, importantly, attempts to recruit full-time staff, which is a great indicator of economic recovery."
European Commission group publish administrative burdens report
The European Commission's High Level Group on Administrative Burdens today released a report entitled, 'Cutting Red Tape in Europe - Legacy and Outlook', detailing the need for businesses to have a strong voice in deciding what legislation should stay and should go in any European statute book clean up.
Commenting on the report, British Chambers of Commerce Director General, John Longworth, said:
" The sentiment of this report is in the right place; it tells us that the EU has listened to businesses’ concerns about the impact of burdensome regulations on competitiveness and economic growth. However, it remains to be seen just how far and how fast the EU will go in implementing these proposals.
“While this is often down to Whitehall over-interpreting EU law, there is no doubt that something had to be done at the Commission level to address business concerns. Impact assessments and better engagement with businesses will help to prevent unnecessary regulations in the first place, and make it simpler for businesses to implement those regulations that are important. This is all contingent, of course, on proper business and economic cost impact assessments being carried out.
"It is also incumbent on governments to pay more attention to the actions of their MEP's; too often burdensome legislation from Europe has been proposed or supported by UK MEP's of all parties.
“However, reform shouldn’t stop with SMEs - we want to see improvements for businesses of all sizes. This is essential if we are to see a vibrant and growing economy in Europe. The next step is for the EU to deliver on the single market for both goods and services, so that it works better for business. This should be a major objective of any future negotiation on reform of the EU."
For a full copy of the report;
That concludes this weeks policy update. We welcome your feedback on these or any other policy issues. Contact us on 01905 673600 / 01432 803236 or via firstname.lastname@example.org