Official: your standard of living is going to fall

Discussion in 'Current Affairs, News and Analysis' started by Blogg, Feb 14, 2008.

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  1. A cheery start to the day.

    Standard of living will fall, warns Mervyn King

    "Families have been warned to expect a decline in their standard of living as rising food and fuel prices place household finances under severe strain.

    Britons have enjoyed a decade of high spending on luxury goods, holidays and second homes, fuelled by low interest rates, easy credit and near-record lows in living costs.

    But Mervyn King, the Governor of the Bank of England, issued a stark warning that this period had come to an end.

    In an uncharacteristically blunt statement, he said rising inflation and the fallout from global economic turmoil would take its toll on the spending power of British households.

    Mr King's warning came during his most sombre assessment of the economy since he took over as Bank of England Governor five years ago.

    "The higher level of energy and food prices is a genuine reduction in our standard of living relative to where it would otherwise have been," he said.

    "This is because of the higher prices that all of us are having to pay."

    Inflation has risen to a seven-month high, according to official figures, driven by significant increases in petrol and food prices.

    Fuel inflation is running at 19.3 per cent, the highest since records began in January 1997.

    In his quarterly update on the state of the economy, Mr King also indicated that there would be further reductions in interest rates in the months ahead, but not as many as the City had been expecting.

    He said he was not surprised that the banks had not been passing on the official cuts in borrowing costs to their customers, adding that they had been "unwise" in the way they had managed their accounts in previous years.

    He warned that house prices might not rise again for another three or four years.

    Mr King also refused to rule out the possibility of a recession this year.

    However, it was the Governor's warning on the standard of living that will attract most attention.

    Inflation has been rising sharply in recent months. An analysis by The Daily Telegraph showed earlier this week that household bills have gone up by £1,300 over the past year.

    Alan Clarke, an economist at the investment bank BNP Paribas, said: "The Governor is referring to this situation we've had for the past couple of years, with the burden of spending on essential, boring items like bills and food eating into people's incomes. Added to which, mortgage rates are staying high and we can't rely on the rising housing market to provide more cash.

    "I can't think of a comparable period like this one in the past decade. It is rather unparalleled."

    Ruth Lea, an economic adviser at Arbuthnot Banking Group, said the Governor's warning underlined the plight facing many families.

    "Quite simply, we are getting less bangs for our buck," she said. "Our standard of living is falling. Our incomes are not going as far.

    "For a large number of people, the cost of living is not rising at two per cent — it is increasing at close to six per cent or seven per cent. Then on top of that you have taxes digging into their incomes — particularly council tax."

    She said that when new tax rates take effect in April — with the lowest 10p rate being removed — those who were feeling the worst effects of price increases would be "clobbered again".

    Despite the pressure on household finances and the consequent clamour for the Bank of England to cut interest rates, Mr King said the recent phenomenon of mortgage lenders not passing on the full benefit of rate cuts to homeowners may continue.

    He said: "In the three years up to last summer, despite the fact that we were raising interest rates, actually mortgage rates did not rise as fast … and some lenders were content to narrow the margins at which they were lending. It wasn’t entirely wise. Now we are going through a period where the margin is being adjusted back to normal, so it wouldn’t be surprising if not all the full extent of interest rate cuts were being passed on. We will take this into account if this is happening with each [rate] decision."

    Sending a warning to families who expect the value of their home to increase in the coming years, Mr King added: "Looking several years ahead, there’s no reason to expect house prices to be markedly above where they are now. It’s conceivable there might be falls in house prices."

    The Chancellor is coming under increasing pressure to drop or postpone his planned 2p rise in fuel duty, due to come into force in April.

    Mr Darling used an appearance on radio yesterday to issue a reassurance that the economy was not in serious peril.

    "It will be a difficult year right across the world, but the fundamentals of the British economy are strong because of what we have done over the last 10 years. They will remain strong," he said. "

    Sorry Darling, but the economy, and Government finances is in shite order in large part because of what Gordon Brown has done over the past 10 years.

    The spectre of Stagflation looms
  2. The Gov'nor is fairly accurate in his assessment. (Perhaps he should be as no one has offerred me his job). I think that the 'hard times' will go into next year and may be at their toughest then. As for the housing market I think that it will suffer for a while but nowhere near as long as is predicted.
    When Broon first becme Chancellor he stated that he would only borrow to fund investment. He has not done so and has almost reached the limit of UK PLC's borrowing, so winged creatures - home to roost etc. The good thing was that he didn't have an election last year as whoever won would have this poisioned chalice to pick up. When they are finally kicked out everyone (even the Chavs) will know that we are in the sh*t.
    I'm off to the emigrate to Australia seminar in March.
  3. Mr Deputy it's been like that since the Roman games kept the citizens occupied. The sad part is that most don't even realise it.
  4. It's the third term of a Labour Govt, what do you expect?

    Actually, when the Chancellor Gordon Brown, err, I mean Darling, decrees that exceptional times require exceptional borrowing I think you will find that UKPLC is nowhere near it's borrowing limit. Brown, err, I mean Darling, only has to blow the dust off previous files on Labour Govts to see how much more it is possible to tax the rich, err, that is tax anyone in employment and borrow, even if you have to go cap in hand to the IMF.

    Happy days, looks good down under, better get in quick!!
  5. Well, Nige, I don't expect anthing different as I remember the period between 1964 and 1979. I just think that Broon has covered his tracks well and people don't realise how much the Govt (ie; us ) is in debt. I disagree on the borrowing limit though. I think that we are almost at the IMF warning point.
  6. Problem is rockpile, we have bust the 40% limit by bringing Rock on to the books. I am already reading leading opinion makers columns decreeing their understanding that for the good of Britain Brown/Darling could make a case for more borrowing. The alternative is to slash spending or raise taxation. Remember how unpopular Maggie was when she slashed spending?

    My option would be to put more money in the pockets of the average bloke, (reduce taxation), and slash the size of the public sector . But hey, I am an unreconstructed Thatcherite!

    No, once the golden rule has been broken there is no going back. The socialists will use the world credit crisis as an excuse for continuing their profligate ways, we are doomed I tell you, doomed!
  7. I agree Nige. I would have let Rock stand/fall on its own merits like any other business - but Broon and his puppet didn't. I doubt that taxes can be raised much more before we wake up and emulate the French.
    Public spending cuts are necessary but they will bring on the pains. I expect the Navy's new carriers to sail off into the ether among other things which are not immediately visible to the citizens. We will know drastic measure are being taken when 'outreach' workers - whatever they are - are being made redundant. Plenty of Govt/Local Authority jobs still out there (all with good pensions). Lots of scope for the axe !
  8. I would make a start with the axing of a million (at least), civil servants.

    Maybe we could keep the carriers after all!

    The thing to keep an eye on is the unemployment rate. That tends to follow economic woes rather than lead it. Amazingly, the latest figures show a decrease in unemployment, suggesting there might still be time to head off this crisis. I rather suspect it will really be a case of managing terminal decline, just like Britain in the 1970's. The decline has already started with a decrease in the standard of living. Older heads have seen this all before, it will be intriguing to see how younger sections of the population react. Emigration, anyone??
  9. dockers

    dockers Old-Salt Book Reviewer

  10. nigeglib - the unemployment rates have been falsified for years. Look at the current figure, add to it the number of students, the number of people claiming disability rather than dole, the huge increase in the civil service and the number on temporary job creation schemes like the New Deal.

    As to increasing taxes Broon has been doing this for years, slice by slice. The Govt now claims more of the national wealth than nearly at any time in the past.
  11. The Civil Servants being reduced I agree with although I have rarely found civility, and never servitude from any of them.
    The carriers require a fundamental rethink of our foreign policy - really how much longer we are going to play World policeman (PCSO really)?

    Unemployment - lies damn lies and statistics. I'm unemployed but I am not allowed to register as such because I have a pension.
  12. Surely you can't be seriously thinking of cutting the number of civil servants? If that happened who would ensure that you got the best kit in double-quick time exactly where you needed it??
    OUCH!! Does anyone know how to treat a bullet in the foot?
  13. Civil Servants would be a priority. Disposal of such would gain the most points especially the MoD which I think that we could manage nicly without.
  14. From 1998 public sector employment rose every year to 5,846,000 in June 2005. This was 680,000 higher than in June 1998.

    Haven't found more recent figures. RP I have heard of people between the age of 60 and 67 being offered early retirement at the state's expense, in return for removal from the unemployment rate. I am no longer sure what the unemployment rate means. In the States they recently had a rate 33% higher than the low point in the cycle, indicating entry to the recession. Not sure if our unemployment rate will ever be allowed to show that. Wish you well if you are looking for work.

    I am not sure I will ever be able to afford to retire in the UK on a fixed income. I don't see a Thatcherite figure in the Tory Party to restore any confidence in what I fully expect to be a long period of decline ahead. I would still trade this Govt in for any other form of Administration!
  15. My standard of living is unlikely to fall, given the 7.5% payrise I've just been given. :D