Economics Digest 28.03.18

By Rishi Shah and Neel Shah

Another Interest Rate Rise around the Corner?

The Bank of England released a statement today (27/03/18) commenting on their observations of high wage growth and how they expect the inflation to remain steady above 2%. This shows that they are confident on the current state of the UK economy and potentially hinting at another interest rate rise from the current 0.5%. Who does this benefit? To put it simply borrowers may have to pay more interest, but savers will gain more interest. The borrowing rate is high at the moment due to strong consumer confidence and therefore a change in interest rate now would not be detrimental. Who decides? The monetary policy committee has 9 people on it and there has to be a majority for the decision to pass (hence the number 9). They meet every month to analyse the UK economy and adjust the interest rate. 2 of the 9 members wanted to increase the rate immediately but the others wanted to wait longer.



Chinese Retaliation

Further to the digest a fortnight ago, the Chinese government has responded with retaliation threats. Earlier this week Trump vowed for tariffs on $60bn of Chinese goods. This is because he believed China was committing intellectual property theft. The top presidential economic advisor in China, stated that China wanted to avoid a trade war, but was prepared to defend its national interests. China is going to retaliate with proposed tariffs worth $3bn, including ones on groceries and aluminium scrap. Does this signify rising economic tensions that could escalate out of hand?

However, Trump has also announced that the EU in addition to the nations of Argentina, Australia, Brazil, Canada, Mexico and South Korea will be exempt from the 25% trade tariff on steel and 10% tariff on aluminium. But this is not a permanent decision, with the imposition of tariffs being ‘paused’ while negotiations take place. These nations control over two thirds of US steel imports, with 7% of UK exports in steel alone going to the US. Thus, it is unlikely that Trump will stand down, as his protectionist policy will have little effect if not implemented fully.


New Car Sales Fall to 5.5% in 2018

Following a slowdown in consumer spending, car sales in Britain are expected to fall by 5.5%, the worst performing market of any large economy in Europe (i.e. in comparison to Germany, Spain, France and Italy who will all see gains). One of the reasons for this is the depreciation of the pound following the EU referendum, which has made cars more expensive. In addition, Britons are becoming more cautious with spending due to the uncertainty of Brexit. However, this has been the case since 2016 (where new car registrations reached a record high of 2.7 million) and is expected to continue into 2019.