One of the most immediate economic changes to the UK post BREXIT has been the devaluation of the pound. This has had a major negative impact on consumer spending and the economy overall. However, there are some signs that the economy is still recovering, even after the recent fall. One of the reasons why this may be the case comes from the study of economics after the Financial Services Commission’s vote to put limits on pay packets and bonuses. The FSA has since tightened up its restrictions and while this has slowed down spending, it hasn’t dampened growth in the same way as Brexit did.
What Economic Changes Are Occurring?
So, why is there a delay in consumer spending? Consumer spending traditionally reflects economic conditions rather than our personal preferences, so it is often the case that people simply wait for an economic indicator to emerge before they decide to make purchases. The timing of announcements from banks and lenders is therefore important. If a bank says that rates will rise, for example, before there is any indication of inflation, consumers are more likely to hold off buying anything until after the inflationary rate has been confirmed.
As a result of the Financial Services Commission’s decision to tighten up rates, consumers may have waited until the official rate has been increased and then gone out and bought something anyway. If this were the only negative impact Brexit had on the economy, then it would be easy to see why there is some delay in consumer spending. However, there are two other indicators that may have had an effect. In fact, one of them has led to research that the Bank of England may hike interest rates before the end of the month.
How Has Consumer Spending Changed
The other main reason why there is a delay in market spending is that retailers are waiting for the government’s intervention to trigger the Bank of England’s quantitative easing program (Quantitative Easing). This is a method which the Bank uses to try to increase the interest rate base against inflation. However, because the timing for this move is now uncertain, and the market may not see increased inflation until after the end of the month, many traders believe that there will not be sufficient demand in the market to prompt the Bank to increase rates when they begin their quantitative easing program.
There has been a lot of debate about how consumer spending will be affected by the economic situation after the UK leaves the European Union. Some economists believe that the delay in consumer spending is actually beneficial to the economy, while others believe that consumers do not care about the economic situation until after the deadline for Article 50 has passed. This means that the delays in spending can lead to a spike in economic activity after Article 50 has been triggered.
Our Final Thoughts
Regardless of whether consumers will buy in large amounts due to changes in the economic climate , there is no doubt that the economy will feel the impact of the slowdown in consumer spending. In fact, some experts believe that it could lead to a recession. While no one can say what effect the economy will experience, the slowdown in the market has caused uncertainty in the financial markets. Therefore, if traders are right and the economy slows significantly, the Bank of England will most likely have to cut rates again to cool the economy back down. It is likely to take some time before the effects of the slowdown are felt, but at least we know that interest rates will stay where they are.
