Sir Mervyn King, Bank of England’s director, said that he is not optimistic about the current global economy or the economy in the UK. The Asian and emerging markets are worsening too which concerns him more. This past May, the British government borrowed more than the projected amount. The government borrowed £17.9 billion as opposed to £15.2 billion in May of 2011. Sir Mervyn is also concerned about the slow response time of European authorities on how to help get England’s economy out of this rut. He asks how the authorities could allow it to go on so long without trying coming to their aid.
Sir Mervyn believes that they are instead pushing the problem aside and not doing anything to help. He also said he would cut interest rates if needed in order to re-stimulate the economy. The jump in the money borrowed this year was due in part to the inverse relationship of an increase in welfare benefits and a drop in income. The government’s attempts to squelch spending have not worked at all and have in fact gone awry. On Thursday the economic data showed that the economy had reduced in size by 0.3%.
Unemployment in the UK is steadily on the rise and people seeking Jobseeker’s Allowance reached 1.6 million last month. The worst affected areas are in Birmingham and Middlesbrough where unemployment rates are above 10%. Businesses are not hiring or firing anyone so the unemployment rate will remain steady. For those buying a house, there is good news. Prices have remained steady since the beginning of the year. However, economists do not anticipate the housing market to pick up any time soon.
The government, along with the Bank of England, has announced a plan to jumpstart the flow of credit through the economy. Finance minister George Osborne has decided not to raise fuel duty much to the relief of businesses and consumers alike.
The euro zone debt crisis poses the greatest threat to the flailing British economy. Deciding the next steps is not an easy task. Chief economist Spencer Dale believes that loosening credit costs is the way to go to help the economy take an upturn.
King has a different approach in mind. He stated that a new economic plan is ready to be put in place and is aimed at lowering the cost of funding for banks. In exchange, the bank can lend more to companies and individuals. The bank is able to do this because they trade illiquid assets, like real estate, for liquid ones. This plan is currently in the works and should be ready to be put into action in less than a month.
A similar economic downturn occurred in 2008 and 2009. Many people fear that the same thing is happening this year. A spokesman for the Treasury stated that since it is still early in the year, it is hard to predict where the economy will be by the end of the year.