Inflation Targeting Pros and Cons

Inflation Targeting Pros and Cons

Inflation targeting means Central Banks are responsible for using monetary policy to keep inflation close to the agreed level.  Since the 1990s, inflation targeting has become widely adopted by developed economies, such as UK, US, and Eurozone. Inflation targets were introduced to help reduce inflation expectations and help avoid the periods of high inflation which can destabilise an economy. However, since the recession of 2008 and consequent unemployment, people have begun to question the importance attached to inflation targets and are worried that a strict commitment to low inflation…

Self-employment tax rises

Self-employment tax rises

In the recent budget, the chancellor Phillip Hammond announced higher national insurance contributions for the self-employed. Class 4 NICs for the self-employed would rise from 9% to 10% in April 2018 – and then to 11% in April 2019 – on income up to the higher rate threshold of £45,000. The new rates are still lower than for employees who pay NI at 12% on the same income levels, while both groups will continue to pay at 2% on income above the higher rate threshold. (Self-employment at Guardian) Personal comment I am…

UK National Debt

The UK national debt is the total amount of money the British government owes to the private sector and other purchasers of UK gilts. In January 2017 UK Public sector net debt is £1,682.8 billion equivalent to 85.3% of GDP Source: (page updated October 22nd 2016) Source: ONS debt as % of GDP – HF6X | PUSF – public sector finances at ONS Budget deficit – annual borrowing This is the amount…

Should university education be free?

Should university education be free?

Summary Education has positive benefits for the rest of society. If university education is left to market forces, there may be under-provision, and the economy may suffer from lack of skilled graduates. Furthermore, in a free market, higher education would become the preserve of wealthy families who can afford to send their children to university. Therefore there is a strong case for the government providing higher education free at the point of use. However,…

Labour shortages

Labour shortages

Labour shortages occur when employers struggle to fill labour vacancies because of insufficient labour applying for the jobs. Labour shortages can occur in geographical regions or in occupations with special requirements in terms of skill or function. Labour shortages can also be seasonal in industries like retail (Christmas) and agriculture (harvest time) Reasons for labour shortages Geographical shortages. An area with a booming economy, but poor housing can experience labour shortages quicker than the rest of the economy. In the UK, London has strong employment demand but suffers from high rent…

Should we be concerned about a falling savings ratio?

Should we be concerned about a falling savings ratio?

In the Bank of England’s latest forecast for the UK, they predict reasonably good economic growth in term of real GDP. At the same time, forecasts for average real incomes are more pessimistic. The Bank of England suggests UK economic growth will be maintained by consumer spending – spending which will partly be funded by a decline in the savings ratio. Essentially, real wages are forecast to stagnate (or grow slowly), but higher spending will be financed by lower saving.

Savings ratio UK

Definition of Household savings ratio: The percentage of disposable income that is saved. (1) Total savings = Disposable income – Household consumption UK Saving Ratio Latest UK household savings ratio: Q3 2016 = 5.6% (Feb 2017) The Bank of England have forecast a fall in the savings ratio during 2017 because of the effects of depreciation in the Sterling pushing up prices. If the forecast is correct it could push the savings ratio down to levels not seen since 2008 – just before the  pre financial crisis.