Mood!

UK interest rates rise for first time in 10 years

True it is but let’s put that into perspective shall we and finish off with a dram.

The first rate rise in 10 years would not have occurred had it not been for 52% of voters at last year’s EU referendum. The drop from 0.5% to 0.25% last year came at a time where there was a clear and present danger to certainty around the UK economy. Some argue this was a shock. It was. The pound literally plummeted. I saw it before my eyes that night after Sunderland came through. Perhaps less said about the football team the better but in terms of delivering, the city in the North East certainly grabbed the headlines early on that night.

The news headlines this week have been all about mood in that a rise was expected because growth in the economy was expected to surpass expectations (yeah…at 0.4%). We were being prepped and mood is the only tool left for the Bank of England. Keynes referred to it as animal spirits but don’t go off roaring yet.

Today is not an indication the economy is performing well just that inflation, as a direct consequence of the falling pound, inflicted by the 52% I hasten to add, is still rising. And now at 3%. The last 12 months have demonstrated an increase of 2.1 p.c. points from 0.9%. In July 2016 it was 0.6%.  Since 1997, the Bank of England has possessed few tools to shape the UK economy’s future which was during a period of visible stability, meanwhile post-crisis it had no option but to use the full force of its main tool (QE being a new concept). This tool is interest rates and to lower the rates to it’s lowest level ever, that record having been broken just last year as explained above.

The Bank of England has been left with little option. No response this time round would see continued inflation whereas an increase in interest rates, albeit by the smallest of margins, would have a negative effect on the economy. We will expect mortgage repayments to increase as an example which in turn impacts on disposable income for lattes and purchases on the discount shelf in TK Maxx. Wages are already decreasing massively in comparison to other EU countries and the UK is now falling further behind in terms of growth as it now sees itself last position of advanced economies.

It was in pole position just 3 years ago.

The economy is undoubtedly still recovering post 2008. The last thing it needed was another storm on top of a category 5 shit storm, serving only to chop the waters more aggressively with no real clear sky in sight. Uncertainty still surrounds the outcome of Brexit where falling back on WTO rules will grind the country to a halt and expand the state – a Tory ‘s worst nightmare. In addition, it should be alarming to us that David Davis is implementing contingency plans for a worst case scenario. It’s not looking promising, is it?

Brexit truly is a case of shooting yourself in the foot in the hope of leaving the trench but rather than expect 52% of your fellow countrymen to save you, while the other 48% are wondering what the hell you’re playing at, you’re actually hoping for the enemy to come across no-mans land to your aid and save you from your own trench that protects you.

Ain’t. Going. To. Happen.

What we should be asking ourselves and UK politicians is, what is the best case scenario irrespective of the will of the people? Undemocratic? Whatever. If so, lets see a bigger number agree leaving the EU is advantageous for everyone. Remember, it’s the economy stupid. As a student in business and management I have become accustomed to the use of frameworks and matrices to gauge an understanding of complex issues. The current position of remaining in the EU should not be ignored.

So, the Bank of England projections are based on a best case scenario and at present the outlook even on that is not good. Be prepared for the worst folks…all 100% of you. At least that’s my mood but I’m in not a part of the 52%. If they are so enthused by Brexit then they need non-Brexiteers like me to get me on board…get me in a happy mood please and I’m with you (subject to scrutiny on whatever is presented and attempting to sway my mood).

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Are sprinkler retrofits really necessary? Why can’t we rely on just an effective and robust fire risk assessment?

I found this article quite interesting from BAFSA in that they sponsored a retrofit in Sheffield back in 2012 to underpin the benefits of active fire protection systems in residential tower blocks. In the wake of the Glenfell incident Sheffield council now appears to be leading the way on residential sprinkler retrofits having experienced the benefits of this pilot first hand, but have also added, primarily to assure residents, that their sustainable energy-saving and aesthetically pleasing cladding is also fire resistant.

I don’t believe a retrofit is required if there is substantial fire stopping material used in the compartmentalisation within residential tower blocks, nevertheless destruction caused by a fire which, despite its effective containment, can still obviously cause significant damage and bring not just inconvenience towards the resident but to his/her neighbours in terms of smoke damage, fear and trust. If sprinklers are installed however damage to an affected flat could be further minimalised but it is worth considering that the fire in the Glenfell tower was actually contained, but startling to us all, with thankfully no real blame attached, firefighters didn’t know that the cladding outside the building had caught light. In my opinion, sprinklers should be considered during a phase of refurbishment which will ultimately ensure minimal disruption to residents and reduced cost to the landlord.

This small blog piece has not dived into the political realm and will keep steer of the fallout from this tragedy. In short, there were recommendations by the Rt. Hon. Sir Eric Pickles via the coroner’s report in wake of the Lakanal Fire that appear to have been largely ignored. So, whatever body is latterly deemed responsible, it will no doubt benefit from the wrath behind the deregulated legislation which is that of the Regulatory Reform (Fire Safety) Order. Is reliance on the fire safety order enough however? If so, heads will have to roll to justify the effects of deregulation. If not, legislation is very much required in the interests of all our health and safety.

Artwork credit: David McConochie as featured in the FT weekend, Saturday 25 June 2017 (www.davidmcconochie.co.uk)

So, what’s wrong with a little inflation?

Although inflation has recently increased to 1.6%, understandably through the devaluation of the pound sterling since the result of the EU referendum (more than 11% on the Euro, more than 16% against the Dollar) and the rising price of oil, it is still an increase which falls within the Bank of England’s 2% target, a target I might add which aims to achieve price stability and is set by Government. So, what’s wrong with a little inflation?

Although this should not be alarming to the consumer, it most probably should be. It was not long ago the now ex-Chancellor of the Exchequer, George Osborne, indicated that 0% inflation in 2015 was a ‘saving to consumers’, contrary to the inflation figure set for the Bank of England to achieve (and to report on if not reached). Now, although to an extent this is true, a continued fall can also curb consumer spending as one may hold out for a better price hence the need to keep inflation up year on year to limit this uncertainty. The mood would be terribly important too, so if the population is generally happy then consumer spending will continue without further ado and might even see an increase in purchasing

Apart from a period in 2009 during the Great Recession, the RPI (Retail Price Index) is almost always higher for those that have mortgage repayments, therefore homeowners could feel an added pinch in the propensity to spend. Importantly to note, as of November 2016, personal credit is at an all-time high and thanks to the positive mood spun by the press just a couple of years ago when CPI was at all-time low we could see spending now being curbed on the back of rising everyday costs combined with increasing and potentially unmanageable credit debt. For some it could be untenable to control given unemployment is expected to rise throughout 2017 which in turn will affect the the UK economic outlook leading to a a negative downward spiral effect.

So, I ask again, what’s wrong with a little inflation? Well, if the starting point for consumer saving and spending was at 0% then surely anything above and beyond is going to negatively affect spending, especially for so-called JAM’s, the Government’s branding of those that are ‘just about managing’. On the flip side, however, had Mr. Osborne indicated that inflation at 0% was negative for consumers then the spiral of deflation could well have continued as mood, or “animal spirits”, again, has played an umeasurable role, professed of course by an economist not widely supported by neo-liberals, John Maynard Keynes.

The above is not exhaustive, nevertheless it’s important to be critical about what happens next as all facets of the economy need to know the extent of the deepest reaches of a Europhile’s thinking as well as taking on board the ultra-positive outlook from hard Brexiteers. Hard is now clean, soft is now dirty but still the UK Government has a hard task ahead of satisfying 48.1% of the UK population who up until last June probably ‘never had it so good’…where matters are more certain remaining ‘in’ as opposed to being ‘out’.