The Chancellor of the Exchequer, Rachel Reeves, has a tough job on her hands to boost the economy and avoid a recession. However, calls for reduction in base rates “to encourage growth and prevent recession” are futile, as noted by Editor John Woods in the current issue of the INTEREST (See page 5 for full article).
Everything is going wrong for Rachel Reeves at the moment. She’s got a weak economy which clearly isn’t going to grow in the foreseeable future. She’s got unsustainable levels of unemployment and long-term sickness resulting in ever increasing benefits payments (and loss of the tax receipts from those people who should be working and paying). We currently have about 1.5m unemployed, which may not be too bad except that, on top of that, we have approximately 2.8m not working due to long-term sickness which is incredibly bad.
- She has an overtaxed economy which is stifling enterprise and investment.
- She is facing increasing wage demands.
- She has so much Government borrowing that she even has to borrow to pay the interest on those borrowings.
- Everything is pointing to significantly increasing inflation.
- On top of all that we are facing increasing global military (and economic) conflicts, not to mention Net Zero.
While some of these things are her fault, and certainly she hasn’t helped, some aren’t and there are some things she can do. She certainly can’t afford any further problems. At the moment the Government is just about able to borrow to pay for its current spending but the bond markets will not put up with that for ever. The events of the last few weeks have been a reminder that whatever else you do you mustn’t allow the bond markets to get twitchy (or Trussed as we could call it).
On the whole the money brokers don’t look for trouble. Their job is to find a safe home for the vast amounts of loose cash that is floating around the globe in need of somewhere safe to invest at a reasonable rate and they would prefer to invest in one of the primary currencies (US, China, Euro, Japan and still, despite everything, the UK). We desperately need to retain the kudos and reassurance being on that list gives us. Bearing in mind that our borrowings are increasing month on month and our economy is getting weaker we can’t rely on the bond markets putting up with us for ever.
We must make sure, that the UK Base Rate is (at least) 0.25% above the current highest base rate of the other four prime currencies, so we are always offering the highest rate. The additional cost in practical terms would be hardly noticeable (putting base rate up 0.25% from its current 4.5%) but it would have the effect of strengthening the pound which is a good thing in its own right and also helps keep the bond markets happy and should ease the Government’s ability to borrow and importantly make our imports cheaper. The next most obvious thing she needs to do is to stop falling out with the other people she needs on her side, such as employers and taxpayers.
There seems little doubt that we are about to enter a nasty slump/recession/crash whatever we now call it. Calls for reduction in base rates “to encourage growth and prevent recession” are futile.
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all of this press release can be reproduced, so long as we are sufficiently sourced.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
Next Issue 6 June 2025. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
The Chancellor of the Exchequer, Rachel Reeves, has a tough job on her hands to boost the economy and avoid a recession. However, calls for reduction in base rates “to encourage growth and prevent recession” are futile, as noted by Editor John Woods in the current issue of the INTEREST (See page 5 for full article).
Everything is going wrong for Rachel Reeves at the moment. She’s got a weak economy which clearly isn’t going to grow in the foreseeable future. She’s got unsustainable levels of unemployment and long-term sickness resulting in ever increasing benefits payments (and loss of the tax receipts from those people who should be working and paying). We currently have about 1.5m unemployed, which may not be too bad except that, on top of that, we have approximately 2.8m not working due to long-term sickness which is incredibly bad.
- She has an overtaxed economy which is stifling enterprise and investment.
- She is facing increasing wage demands.
- She has so much Government borrowing that she even has to borrow to pay the interest on those borrowings.
- Everything is pointing to significantly increasing inflation.
- On top of all that we are facing increasing global military (and economic) conflicts, not to mention Net Zero.
While some of these things are her fault, and certainly she hasn’t helped, some aren’t and there are some things she can do. She certainly can’t afford any further problems. At the moment the Government is just about able to borrow to pay for its current spending but the bond markets will not put up with that for ever. The events of the last few weeks have been a reminder that whatever else you do you mustn’t allow the bond markets to get twitchy (or Trussed as we could call it).
On the whole the money brokers don’t look for trouble. Their job is to find a safe home for the vast amounts of loose cash that is floating around the globe in need of somewhere safe to invest at a reasonable rate and they would prefer to invest in one of the primary currencies (US, China, Euro, Japan and still, despite everything, the UK). We desperately need to retain the kudos and reassurance being on that list gives us. Bearing in mind that our borrowings are increasing month on month and our economy is getting weaker we can’t rely on the bond markets putting up with us for ever.
We must make sure, that the UK Base Rate is (at least) 0.25% above the current highest base rate of the other four prime currencies, so we are always offering the highest rate. The additional cost in practical terms would be hardly noticeable (putting base rate up 0.25% from its current 4.5%) but it would have the effect of strengthening the pound which is a good thing in its own right and also helps keep the bond markets happy and should ease the Government’s ability to borrow and importantly make our imports cheaper. The next most obvious thing she needs to do is to stop falling out with the other people she needs on her side, such as employers and taxpayers.
There seems little doubt that we are about to enter a nasty slump/recession/crash whatever we now call it. Calls for reduction in base rates “to encourage growth and prevent recession” are futile.
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all of this press release can be reproduced, so long as we are sufficiently sourced.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
Next Issue 6 June 2025. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
