“After months of speculation, the decision has finally been made to cut the base rate to 0.25%, with the Bank of England setting the interest rate at a historic low in a bid to shake up the stagnating economy. It is the first time rates have changed since the height of the financial crisis in March 2009 and the news has already got people talking about whether or not this will negate some of the effects the Brexit vote has begun to have on public confidence, at a time when the economy was already teetering.
But does this historic decision actually mean anything in the short term? The reality is that any lowering of rates typically takes around nine to 12 months to have any sort of tangible impact on the economy and it is too soon to predict exactly what this impact will look like, especially given the current political uncertainty. The Purchasing Manager’s Index (PMI) fell off a cliff in July, the sharpest drop on record, and other economic indicators suggest that there will be a soft recession in the last quarter of this year and into the first quarter of 2017.
So, what does this mean for the jobs market?
The only thing that we know for sure is that the entire economy and public confidence is uncertain, and this will be reflected in attitudes of employers. The Bank of England expects the unemployment rate to rise to 5.4% next year and 5.6% in 2018, as well as reducing its growth forecasts for 2017. As such, I expect temporary and short-term contracts to rise in popularity as business owners tread carefully in planning their pipelines. Until we know what the UK’s new trading arrangements will be post-Brexit, any business involved in imports and exports will be extremely hesitant when it comes to investing in their workforce. But, as Carney said, the UK can handle change and I hope that the government now follows his lead in taking decisive action to respond to concerns in the economy.
I eagerly await the Autumn Statement, where I expect the new Chancellor to introduce plenty of initiatives around tax and spending, including an end to certain austerity measures, dropping corporation tax and giving the green light to major projects like the Heathrow extension, HS2 and Hinkley Point. Philip Hammond has a tough job ahead and he will be crucial in deciding how we cope as we implement Article 50 and exit the EU. Quantitative easing could also help to kick-start infrastructure projects that would bring thousands of jobs to the British jobs market.
It is encouraging to see the Monetary Policy Committee taking unanimous action on interest rates at a time when the government seems worryingly complacent, and the action is in line with the Governor of the Bank of England’s warnings ahead of the Referendum, which were sadly ignored by many. The government should now follow his lead and implement a clear plan of action on how best to protect and nurture our economy if we are to survive both the short and long term effects of Brexit.”
