One good thing about the recent pandemic is that all countries taste poverty, suffer, help each other and move with confidence as a society. England, or U.K. as it is called faces uphill task from huge energy bills, enormous increase in costs of food grains, groceries, and vegetables all at the same time due to Brit exit, self-imposed economic liberalization as they call it, havoc due to pandemic in spite of being the head quarters for producing vaccine for the world, and at last now political upheavals whose effects reverberate around the world. So, the Bank of England was forced to help with its titbits for managing the forbidden costs of living to its citizens and others living there. With so many reminding me the poverty as the main issue in U.K. today, my research led me to the website of Bank of England which gives practical advice. Please read them, and insist on our governments, both at center and state, to devise ways to mitigate our suffering. Reference given at the end.
So, now, for British, how to manage costs of living on the rising scale. For you, eyes only. (I shall deal with India at the end) From Bank of England web site——(BOE)
It has given the following heads for management.
- If one owes money and struggling: Start talking to the organizations one owes money, request for easy repayment terms by proper explanation.
- Using the food bank: Food banks give free food to those economically weaker sections of society as per set terms. In U.K., Citizen’s advice, a body can help. Contact with them is a must for help or advice.
- Any one can ask an organization that is supporting him/her to get contact details from GOV.UK.
- Going to food bank: When an organization refers anyone to a food bank, it gives a voucher and guide the relevant food bank for help. Food bank gives food parcel and also advise about the income of the person and spending habits.
- Yes, food bank in rural areas might be able to deliver the food parcel if their address can be located and contacted online/offline ways.
- If one is above 18 years, he/she can use Turn2us benefits calculator to know the quantum of benefits one can avail of.
- How to get help about debt? By talking to the financial institutions that gave loans to the concerned person, the agency or departmental store which issued credit cards or other facilities to pay immediately and to recover later either by instalments or lumpsum payments. Complete stoppage of repayment of loans will not solve any problem.
- Now that bank lending rates are increased due to inflation, how will it affect a common man? It is the government that sets the tolerable inflation rate. In U.K. prices of commodities can go up to 2%, beyond which Bank of England takes necessary steps to stem the increase.
- The following quote from the web site is an eye opener. “In extreme cases, high and volatile inflation can cause an economy to collapse. Zimbabwe is a good example. It experienced this in 2007-2009 when the price level increased by around 80 billion per cent in a single month.”
- What does Bank of England initiate to control inflation?
- By using monetary theory, BEE tries to control inflation since it is a common fact that high interest rate forces one to avoid expenditure and save money. Less availability of money will force the prices of goods and services to fall. During pandemic, the reverse happened and the central banks pumped in more money to help people to face the uncertain economy.
With current inflation rate of 9.9% (current bank rate 2.25%) as against the targeted 2%, how does the correspondence between Bank of England and their government discuss the issue?
This is important since in India, no correspondence between the regulatory authority, RBI and the central government is not shown as protocol.
Letter dated 22nd September 2022 to the Chancellor of the Exchequer.
- the reasons why inflation has moved away from the target, and the outlook for inflation;
- the policy action that the MPC is taking in response;
- the horizon over which the MPC judges it is appropriate to return inflation to the target;
- the trade-off that has been made by the MPC with regard to inflation and output variability in determining the scale and duration of any expected deviation of inflation from the target; and
- how this approach meets the Government’s monetary policy objectives.
Details of write up may be found in BOE website.
What about the reply of the Chancellor of the Exchequer?
Let me intersperse with actual words which are very interesting and stimulating for a reader.
“Thank you for your letter of 22nd September on behalf of the Monetary Policy Committee (MPC) regarding July’s Consumer Price Index (CPI) figure. The twelve-month measure of CPI inflation was 10.1% in July, which triggered an exchange of open letters under the terms of the MPC remit.
……. The government’s commitment to the 2% CPI inflation target, and the independence of the Bank remains absolute. It is essential to businesses and households across the country that inflation is brought back to target, and I know and expect that the MPC will continue to take the forceful action necessary to achieve this and to ensure inflation expectations remain firmly anchored.
……………………………
The Prime Minister announced that the average energy bill will be frozen at £2,500 a year to help households. By holding energy prices down, the action we are taking will avoid the further rises in inflation that many had predicted this winter. This policy is expected to lower inflation by up to 5 percentage points over the first six months and see typical households save an average of £1,000 a year on energy bills.
This support will come in addition to the £37 billion announced by Chancellor Sunak, including the £400 discount through the Energy Bills Support Scheme and the one-off Cost of Living Payments, which will provide £1200 direct financial support to millions of the most vulnerable households, with additional support for pensioners and those claiming disability benefits………….”
Please read the soothing words of the Exchequer to ameliorate the abnormal 11% inflation infuriating millions of British who have no substantial income to manage their house expenses.
It is very clear that the ballooning of inflation crests on the sudden pandemic, eruption of Ukraine war thrust by Russia, and the unpredictable economy showing extraordinary weakness in the beginning requiring enormous liquidity from BOE and later huge inflation unsettling the earlier expectations.
A similar pattern is visible everywhere in all democratic countries which allow transparency, free discussions and the necessity to take steps which look harsh in the eyes of the ordinary tax payer but still held as vital in the eyes of the regulatory authorities. This picture is verbatim applicable to our nation too.
Let us hear the experts’ view of the monetary policy of UK.
Minutes of the Monetary Policy Committee meeting ending on 21 September 2022
Major observations of BOE Monetary committee in its meeting held on 21-09-2022. (actual wordings to know the mind of BOE)
- Global scene: “UK-weighted global GDP growth appeared to be slowing in 2022 Q3, with data coming in a touch below the already weak expectations at the time of the August Monetary Policy Report. Wholesale gas prices had been highly volatile since the MPC’s previous meeting.”
- GDP in Euro area was expected to be flat in the third quarter of 2022. China is expected to show a weaker growth of GDP in the third quarter than expected. Some of the obvious reasons were weaker increase in fixed asset investment and industrial production.
- Yes, the expected inflation in Euro area stood at 9.1% in August 2022.
- It was reported that Dutch title transfer facility spot price, a measure of wholesale gas price, was at around €210 per MWh, around 25% higher than in the August Report
- What was the voting on the proposition of the Bank?
The Chair invited the Committee to vote on the propositions that:
- Bank Rate should be increased by 0.5 percentage points, to 2.25%;
- The Bank of England should reduce the stock of UK government bond purchases, financed by the issuance of central bank reserves, by £80 billion over the next twelve months, to a total of £758 billion.
Five members voted in favour of the first proposition. Three members voted against the first proposition, preferring to increase Bank Rate by 0.75 percentage points, to 2.5%. One member voted against the first proposition, preferring to increase Bank Rate by 0.25 percentage points, to 2%.
The Committee voted unanimously in favour of the second proposition.
Our discussion
To a specified question, why did I attend this write up and what relevance it had with our readers or our economy, the mere mention of rate change in US Fed, has affected the Indian rupee substantially, the share market had been violently moving up and down, millions have lost or gained in capital valuations of their securities.
Hence, briefing about the international changes in bank rate by various central banks is an essential way of discussing world economy. With the BOE reference at the end, you will notice that even kids have lessons for inflation from the age of 8 onwards.
Let us globalize our thoughts, read relevant materials and get prospered from global economy.
Reference
https://www.bankofengland.co.uk/
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional
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