If money makes the world go around, as per the saying, then borrowing induces somersaults.
For many in business, leaving the EU has lobbed a serious spanner into an already edgy economy. There has been nothing in the way of a Brexit bounce. Growth is non-existent and recession looms.
That’s the opinion of the Bank of England anyway, although they’re also acutely aware of the fine line that divides providing an upfront appraisal of the situation from actually talking yourself into a downturn.
The response in Threadneedle Street therefore has been to cut interest rates.
An estimated eleven million households have a mortgage – which represents by far their biggest single outgoing. Current statistics have it that a 0.25% cut represents an average £22 monthly drop for repayment plans on outstanding borrowing. If that extra cash goes into other purchases instead, reason the fiscal wizards, then the desired economic effect should be seen in about three months.
What worries analysts elsewhere is that three months is a lifetime when global markets are so volatile.
The other niggling factor is that lenders might not pass on a sufficient portion (or any) of the reduction onto borrowers, although the BoE insist that a £100bn scheme will force banks to do so.
Critics who liken the revered institution to a one-trick pony with three legs, reckon it’s not long before we enter the weird world of negative rates, in which borrower's total repayments are worth less than the amount they first borrowed.
It’s nothing new in Denmark, Sweden, Switzerland and Japan, where central banks already offset the phenomenon by charging private sector banks to hold their money.
But is it so bad that the cost of borrowing is coming down?
Definitely, say a host of economists who insist that there’s no such thing as cheap money, only temporary cheap debt.
We’re already deep in hock as a nation. According to the Money Charity, people in the UK owed £1.479 trillion at the end of May this year. That was up £773.78 per adult from 2015. The average total debt per household – including mortgages – was £54,740, also up on last year.
Although borrowing may be soon become cheaper, getting hold of a loan is getting distinctly harder. Mortgage eligibility rules are a lot tougher following the 2008 meltdown.
High Street banks also remain risk-averse towards business lending in particular.
That’s just as well for some 60,0000 small firms who were sold fixed-rate ‘tailored’ business loans several years ago. The idea was to protect them against interest rate changes. What they weren’t told was that ‘embedded’ interest swaps secretly added by the banks had the reverse effect. This led to many businesses going bankrupt.
Compare that outcome to yesterday’s news that FTSE 100 bosses take home an average of £5.5m per year and you understand how a body of opinion believes interest rate cuts are more likely to be of immediate benefit to financial institutions than families.
I tend to agree.
Labouring over differences
As far as this column is concerned, I’ve managed so far to keep my own counsel regarding the current Labour leadership election. That could change quite shortly.
I’ll just say for the time being that I find the whole thing to be an unnecessary and unproductive business.
I actually quite like both contenders as individuals and politicians. Nonetheless, it’s a campaign that offers very little to anyone seeking something further than a more-socialist-than-thou peeing contest.
Maybe I’m out of step – and it wouldn’t be for the first time – but if there was a debate to be had over future policy direction then that’s what annual conferences are about. On the other hand, how do you implement policies with the potential electoral oblivion that’s currently being predicted?
I don’t have any quick answers but I what I will say is that anyone who thought the days when a politician could fill the LC2 auditorium were over needs a rethink. Me included.
Dos Rioja Por Favor
Several years ago, a rather bumptious individual dissed this part of world as "Rioja-ville” – referring to predominant tastes among wine drinkers. That barb got him the boot from one of the city’s more notable establishments - where patrons duly raised a glass to his departure.
I mention this because, courtesy of some inspired marketing, 25th August has been officially dubbed ‘Rioja Day’ in Swansea whereby copious supplies of the distinctive wine will be available at several venues.
Although I’m more inclined towards a Valpolicella nowadays, it’s true I’ve hitherto been spotted in a local bodega imbibing one or two glasses of Muga in the company of a former Evening Post editor.
Unfortunately I’m not sure that I’m going to be in the city on the big day. Nonetheless, I’m sure aspiring participants will mark the occasion with appropriate Swansea enthusiasm – and include a welcoming toast to our new Spanish arrivals at the Liberty.
Salud muchahcos. Bienvenidos.