house4sale

information on the UK property market

Archive for February, 2011

Lybia – impact on UK economy

February 22nd, 2011

As the public desire for change spreads across the Middle East region there is increasing concern published in the media about what this could mean for oil prices and the western economies.

In some ways such views are perhaps a little selfish, those who are truly suffering are the populations of the Middle East countries where repression is backed with violence. But then equally there is a responsibility on those countries that produce the world’s oil to ensure the supplies are maintained.

So what is the impact on the UK economy? The main impact is inflation, any increase in oil prices will impact not only fuel prices, but also the supply of commodities, food, goods and services of which the vast majority depend on oil for transportation and in some cases production.

The consequences of higher inflation could be severe by bringing forward interest rate rises that in turn will restrict economic growth and possibly push the UK back into recession.

Clearly all of this is hypothesis, it is by no means certain the the current Middle East turmoil will become protracted and impact oil prices long term. In fact there is a possibility that once the current turmoil subsides those countries affected will seek to increase oil exports to improve their economies, and any increase in oil supply will reduce the price of oil.

It will be interesting to see how this plays out in the next few months.

Comments Off

Posted in UK Economy

Tags: lybia uk economy

Bank tax levy increased to £2.5 billion on a permanent basis

February 8th, 2011

The new £2.5 billion bank tax levy ….whilst this is good for the British taxpayer there are still questions about the support given to banks and how those banks pay for the support received.

No country can implement unilateral sanctions against the banks such as “capping bonuses” without risking those banks relocating to another country. But clearly something has to be done to address the imbalance where in good times a bank creates vast profits for its executives and shareholders, and in bad times they get a safety net from the tax payer.

But there has to be a way, a way in which banks cannot rely on a tax payer safety net without there being huge financial consequences for them. Perhaps only then will the banking system operate in a more risk adverse way so as to avoid melt down knowing that such a situation carries huge financial penalties.

As to banks lending to small and medium businesses this is a very difficult issue. It is very difficult to force any bank to lend to a business that is considered a high risk, otherwise we end up back where we started, that is bad loans causing banks to fail. But equally there has to be more focus on business lending, not all businesses are high risk. Maybe one of the big issues for banks is the regulation now being applied for them to increase liquidity, such regulation is effectively a “brake” being applied to all lending.