Economy Update from Amplo’s Scott Williams
Say what you like about the government. But as far as financial intervention goes, they’ve done a brilliant job in my opinion.
Had the government not stepped I believe a lot of the below would likely have unfolded and in turn would of possibly thrown us into a depression rather than a recession.
CBILS, grants, BBL and furlough all playing a major roles in keeping the economy stimulated through a period where GDP dipped to -21%.
So where does that leave the economy now?
- Bank of England Government Gilts will total £875billion (Quantitative easing)
- Current inflation rate is at 0.7%
- Target inflation is 2%
- Current interest base rate is 0.1%
- Dramatic shift in fiscal policy (government tax and spending policy’s such as 130% super tax deduction and 25% corporation tax)
- Estimated deficit of £278.8billion
What does this mean moving forward?
– Monetary policy – interest rates are likely to stay low due to inflation currently being 0.7%. Whilst money is inexpensive, people will continue to lend money which in turn stimulates economic activity, which in turn should produce inflation. And with the base rate being 0.1% people are desperate to get money into the markets and out of saving accounts.
– Fiscal policy – 25% corporation tax is likely a taste of what’s to come. Given the £2.13tril government debt (approx. 90% of GDP) and the £278.8billion deficit our children’s, children will likely be paying this off
– Property market – whilst lending is cheap and there’s liquidity in the market, property in my opinion will likely continue to grow as long as inflation stays low
– Inflation – we may see disinflation which is a term for falling inflation, where prices are still rising but not at the same rates. Although inflation is low there’s a possibility that inflation may occur due to all the Quantitative easing
All in all, economics are very complex and I’d suggest people conduct their own due diligence on the markets. As the phrase goes – plan for the worst but expect the best.
Fiscal policy: the use of government revenue collection and expenditure to influence a country’s economy
Monetary policy: the actions undertaken by a nation’s central bank to control money supply and achieve sustainable economic growth
Deficit: the difference between government spending and what they earned in tax
Quantitative easing is a monetary policy whereby a central bank purchases at scale government bonds or other financial assets in order to inject money into the economy to expand economic activity