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Mixed Response From Economist On Rate Cut

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A quick response from the Economist to the rate cut (did they write it before the announcement, i wonder?). Not as bleak as many posts here, but they do recognise the lurking dangers on the horizon.


Here's the conclusion:

Despite these worries, it is unlikely that Britons are in for a series of interest-rate cuts. The Bank of England knows that no good will come of re-inflating the housing bubble, which would only result in worse pain down the road, as more consumers fall into the trap of too much debt. And there are reasonable hopes that further cuts may not be necessary. Though the International Monetary Fund has just cut its forecasts for euro-area growth this year and next, some recent indicators have been rather encouraging. And the value of Britain’s currency against a basket of its trading partners’ currencies fell by 4% between the end of April and the end of July, which should provide additional stimulus.

If Britain’s economy does not perk up, however, this could spell trouble not only for the Bank, which will have a tough time steering between the Scylla of stagnation and the Charybdis of inflation, but for the world at large. The world remains far too dependent on American consumer demand for its economic growth. And American consumer demand, like that in Britain, has in recent years been far too dependent on rising house prices and steadily increasing debt to finance the resulting spending. Britain could turn out to be the canary in the mine that tells central bankers—especially the Fed’s Alan Greenspan and his yet-to-be-named successor—what happens to an economy when consumers finally reach their credit limit.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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