Assorted Links (18 Jan 2010) - Focus on Interest Rates
1/ BBC news video - UK interest rates could stay low for five years - One of the UK’s best known economists, Roger Bootle, predicts that interest rates will stay below 1% for the next five years
2/ Telegraph - Economists question success of Bank of England’s £200bn money-printing plan - Economists have cast doubt on whether the Bank of England’s £200bn quantitative easing (QE) programme is working
3/ Telegraph - Why the Bank of England will raise interest rates as deflationary threat melts away - despite massive amounts of Quantitative Easing (QE) in both the US and UK. It is surely only a matter of time before short-term rates follow suit. Or so you would assume
4/ Guardian - Too dangerous to raise interest rates yet - Setting interest rates is a dangerous game - and one that could choke off recovery
5/ The Times - Profile of Willem Buiter - Maverick laughs all the way to the bank - More booms and busts lie in wait, economist Willem Buiter predicts.
Revision Presentation - Monetary Policy for AS Economics
This revised and extended revision presentation on monetary policy is designed for AS students
Launch interactive version of presentation
Download pdf of slide handouts
Rated: 
(4/5), based on 1 review
Judging the impact of QE
The BBC carries this interesting video discussion with De Anne Julius about the impact of the Bank’s Quantitative Easing programme designed to support demand and lending in the UK economy. She emphasises the importance of gradually withdrawing the QE programme and she argues that the main effect of QE so far has been to hold down the interest rate on government debt (gilts) but that there is little evidence so far that QE has enabled a rise in lending to consumers and small businesses. The Indy’s Big Question looks at QE in their edition today.
read more...»BoE Health Check on the UK Economy
The Bank of England has released its latest health check on the stability (or otherwise) of the UK financial system.
Without a recovery in financial sector balance sheets and a return of an appetite to lend and unfreeze the supply of credit, any recovery will be delayed and weak.
Banks continue to de-leverage aggressively and I have met several owners of profitable and well managed smaller businesses in recent weeks who have complained that their banks are getting in touch directly to change the conditions of their credit facilities. In some cases the banks are adding 1 or 2 per cent to the rates charged for overdrafts and loans - which themselves are already a high multiple of the policy interest rate. It is the banking equivalent of the rip-off extra charges for people flying with the lower-cost airlines.
read more...»King and Chancellor at odds over intervention
Both the Chancellor of the Exchequer and the Governor of the Bank of England gave their Mansion House speeches to the City yesterday, and both addressed the issue of regulation of the banking system. But while the Chancellor emphasised that he had no plans to fundamentally change the regulation system, the Governor called for more powers for the Bank to intervene and prevent excessive risk taking. This is at odds with the approach outlined by Alastair Darling, who referred instead to encouraging a change of management culture in the banks which would encourage bankers to manage themselves more effectively, being “rewarded for long-term success, not for failure”. He seems to suggest that the solution lies more in ensuring that banks are led by Boards of Directors with “the right people of the right skills and the right experience …. and they need to be equipped to ask the right questions.” He also called for an end to short-termism: “Their focus must be on long-term wealth creation and not short-term profits.”
read more...»David Miles - Brief Profile
A quick heads up on a brief profile of David Miles in The Times this morning
February 2009 – UK policy rates cut to historic low of 1%
The Bank of England’s Monetary Policy Committee (MPC) has lowered the Bank Rate by 50bps to 1.00%.
read more...»Homeowners step away from equity loans
During the housing boom millions of property-owners in Britain opted to unlock some of the equity in their homes by extending their mortgage and using it as a prop for extra spending such as a new car or other big-ticket consumer durables. Housing equity loans have also been made available by some lenders for older households to maintain their spending during retirement.
The Bank of England’s estimate of mortgage equity withdrawal (MEW) is intended to measure that part of consumer borrowing from mortgage lenders that is not invested in the housing market. It takes the increase in housing finance (net mortgage lending and capital grants) and subtracts households’ investment in housing (purchases of new houses and houses from other sectors, improvements to property, and the transactions costs of moving house).
But as the housing recession deepens and prices fall at an annual rate of more than ten per cent, the pattern of equity borrowing has reversed. For the second quarter in succession, people invested nearly £6 billion into housing equity - in effect thousands of people have taken the decision to scale back on equity loans and focus instead on repaying some of the outstanding mortgage debt as and when funds allow.
This change in borrowing psychology has been accompanied by tighter lending criteria being used by lenders making it more difficult and expensive for people to extend their mortgage. Just as the days of the 95% - 100% mortgage have gone for now, so the steady flow of equity release marketing coming through letter boxes has dried up completely. It is all part of the complex process of de-leveraging - an attempt by financial institutions to cut their lending and rebuild their balance sheets.
For the best part of a decade the booming housing market was a significant crutch for domestic consumer spending. Now that equity withdrawal has gone into reverse and with unemployment expected to rise by up to one million over the next year, there are two major drivers of household spending pointing firmly in a downwards direction. The collapse in equity withdrawal is evidence of greater caution among consumers but is yet more bad news for retailers.
The BBC covers the latest data in this article
The Bank’s Recession Forecast
The Bank of England has published its latest Inflation Report and used the opportunity to produce a set of macroeconomic forecasts that are significantly more pessimistic than just a few months ago. The BBC reports on the Inflation Report here. There is an overview available from the bank here - four pages that are worth taking AS students through to apply their understanding of AD-AS.
It’s official - we can now use the R word
This excellent short video from Channel 4 news highlights the speech from Mervyn King in which he confirmed the Bank’s view that the UK is headed for a recession.
read more...»Most Popular Topic Tags on the Economics Blog
recession, demand, unemployment, economics, prices, price, inflation, investment, costs, profit, trade, employment, debt, supply, downturn, euro, gdp, confidence, competition, risk, china, capacity, production, exports, incentives, oil, expectations, manufacturing, sterling, housing, pay, food, profits, banks, tutor2u, globalisation, mortgage, property, revision, retailers, slowdown, borrowing, usa, innovation, emissions, dollar, deflation, airlines, supermarkets, entrepreneur, monopsony, efficiency, productivity, google, elasticity, moodle, wealth, aqa, keynes, welfare, consumption, externalities, protectionism, saving, opec, economist, inequality, strategy, depression, competitiveness, economic cycle, tim harford, stocks, depreciation, jobs, monopoly, infrastructure, carbon, credit crunch, poverty, cars, bank of england, eu, vle, environmental, carbon trading, spare capacity, budget deficit, environment, subsidy, wages, market failure, management, regulation, evaluation, output gap, losses, behavioural, government failure, steel, climate change, construction, macroeconomics, imports, oligopoly, japan, bbc, skills, cpi, commodities, farming, newsnight, paul mason, intervention, fiscal stimulus, single market, currencies, population, stagflation, itunes, contestable, lse, agflation, minimum wage, interest rates, choices, aviation, multiplier effect, amazon, germany, taxes, uk economy, monetary policy, cartel, survey, nationalisation, india, quantitative easing, brazil, rpi, pricing, dan ariely, opportunity cost, apple, pollution, oecd, rationality, keynes society, rsa, relative poverty, shipping, iphone, capital, merger, currency, imf, balance of payments, yuan, tragedy of the commons, price discrimination, current account, economies of scale, redundancies, london, savings, facebook, stakeholders, shareholder, behavioural economics, mpc, supply chain, liquidity, takeover, barriers to entry, reputation, income elasticity, poverty trap, microsoft, human capital, hamish mcrae, subsidies, discrimination, roger bootle, federal reserve, robert peston, duopoly, immigration, suppliers, us economy, quiz, gini coefficient, collapse, coffee, obama, pensions, development, national debt, consumer surplus, crowding out, etonomics, eurozone, crude oil, scarcity, labour market, ecb, petrol, taxation, tesco, free, brand, smoking, budget, paradox of thrift, cost of living, transport, labour mobility, global, speculation, starbucks, recovery, iceland, allocative efficiency, behaviour, surplus, david smith, waste, shareholders, ireland, happiness, growth, information failure, vat, creative destruction, open source, cost benefit analysis, trade deficit, tariffs, northern rock, edinburgh, ownership, scrappage, robert frank, ocr economics, aggregate demand, freight, diane coyle, kaletsky, royal economic society, eton college, exploitation, labour force survey, government borrowing, utility, fishing, edexcel economics, sony, leverage, marginal cost, tax, information, discounting, animal spirits, peter day, liquidity trap, contestable market, anchoring, zimbabwe, european union, savings ratio, wiki, needs, internet, public sector, evan davis, public goods, heathrow, price war, energy, hotels, standard of living, contestability, hbos, stephanie flanders, twitter, wants, migrants, poland, blog, consumer welfare, aqa economics, devaluation, spain, pubs, milk, foreign exchange, indirect tax, forecast, external shocks, comparative advantage, eu enlargement, movies, advertising, enlargement, bond, mervyn king, income elasticity of demand, blogging, ebea, property rights, accelerator, edmund conway, deforestation, house prices, copper, hot money, jim o'neill, ucas, bonds, trend growth, paul krugman, libor, elasticity of supply, carbon tax, income, diesel, income tax, jobless, accelerator effect, law of unintended consequences, guardian, youth unemployment, john kay, google wave, fixed costs, nissan, deficit, global economy, sub-prime, economic efficiency, exchange rates, vacancies, research, biofuel, renewable, companies, profit margin, price capping, joint venture, price mechanism, natural monopoly, world bank, martin wolf, training, startups, competition commission, gilts, geoff riley, immobility, coal, fairness, producer surplus, greece, redundancy, social costs, will king, sentiment, base rate, walmart, ageing population, disposable income, equity, corus, collusion, tickets, oil prices, fair trade, dynamic efficiency, obesity, social entrepreneur, russia, real income, res, binge drinking, philip allan, low pay, king of shaves, vehicles, broadband, cash, price fixing, tariff, hysteresis, tata, supply-side, government spending, eastern europe, internet explorer, income distribution, compound interest, contestable markets, positional goods, repossession, economax, general motors, sustainability, students, green shoots, ftse, age structure, frictional, satisficing, logic of life, pay floor, disincentives, yahoo, resources, gillette, liberalisation, blackberry, negative externalities, oft, aldi, migration, economics revision, financial times, fiscal drag, healthcare, asda, market structure, cadbury, credit, ryanair, wheat, market power, winners curse, apprenticeships, hidden unemployment, demography, cyclical, british airways, deindustrialisation, sovereign debt, credit cards, declan curry, nokia, renewable energy, optimal currency area, anti-trust, public good, bric economies, decoupling, markets, diseconomies of scale, rory cellan-jones, the economist, barclays, economic welfare, tax burden, undercover economist, child poverty, retailing, pension, landfill, schumpeter, veblen goods, enterprise, brics, redistribution, floating exchange rate, gold, unintended consequences, vertical integration, structural, monetary policy committee, nhs, reserve currency, single currency, football, job losses, nairu, costa, nelson thornes, scotland, deleveraging, green revolution, drugs, collaboration, hyperinflation, automatic stabilisers, podcast, o2, pay cuts, real gdp, monopoly power, global business, labour supply, ocr as economics, hedging,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Need help. - Economic Growth
Economies of scale presentation A2
Economic development
International Competitiveness
Keynesian Aggregate Supply
Demand Supply (% VAT Imposed) How to...?
Policy conflict and the Euro
Registering for the tutor2u VLU
Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
