Speculation Abounds as Pound’s Value Falls
Even after four straight weeks of the pound’s value falling against the US dollar, the Bank of England continues to shoo away talk of impending inflation. This has fueled banter in the press over the the idea that UK interest rates could remain low while those in government attempt to take aim at the current budget deficit. With gilt yields continuing to drop to the lowest levels of 2010 due to an increasingly tense view the EU’s debt crisis, risk aversion is triggering investors to pursue the assets they view as safest. Prices for UK consumers have risen nearly 4 per cent between April 2009 and April 2010, exacerbating debt levels for UK households as product prices rise with no corresponding rise in income levels.
This situation is what lead Governor Mervyn King to pen an open letter of explanation to George Osborne, the incoming Chancellor of the Exchequer. The rise in consumer prices has exceeded the central bank’s desired target of only 3 per cent, causing public concern and requiring King’s direct response regarding the situation.
This, in collusion with the Bank of England’s recent Monetary Policy Committee meeting on May 10 has lead many economists both domestic and foreign to speculate that the UK is currently in a crucial phase from which two futures are possible. In the first, the UK continues to rise from the ashes of the global economic crisis first begun in 2008, leveraging the fall out and bettering not only the consumer economy, but the buying power of the pound. In the second, a misstep could mean that the committee’s unanimous vote to keep interest rates low while refusing to purchase more debt send the economy off kilter, creating a second round of trouble for the British consumer base.
With uncertainty now running rampant, consumer level experts are advising that those households experiencing debt take advantage of a debt management plan while these offer a decent road to recover rather than hold off in the hopes of better terms. It’s a win win situation for most consumer households looking to restructure their finances at this time. If the economy gets worse, the DMP can be adjusted, but if it betters it can also be adjusted and possibly paid down faster.
Just as the UK itself continues to be advised by financial experts to tighten its fiscal policies to preserve the pounds values versus both the dollar and the euro, UK consumers are being encouraged to get their monetary houses in order to ready for either coming economic change.
