Mark Carney, Governor of the Bank of England, warned today that the UK has “entered a period of uncertainty and significant economic adjustment” and added that the efforts by the Bank of England will not be able to fully and immediately offset the economic volatility that is to be expected ahead of the Brexit negotiations between the UK and the EU.
This evening, BfS CEO Gordon MacIntyre-Kemp responded to his warning.
“Mark Carney has acted to subdue an unstable market, but that instability is being fed by the lack of credible political leadership at Westminster and a lack of planning for Brexit done by those on both sides of the argument.”
“Carney’s move simply adds the potential for more personal debt and business debt to be added to an already debt laden system with a poor balance of payments, whilst reducing bank reserves.
“The UK economy is looking more like a Ponzi Scheme by the minute and Scotland would do well to man the independence lifeboats before the sink.
“Carney is doing what he can but he must now consider QE for the people and, having bailed the banks out after the credit crunch, consumer spending cannot be maintained unless the UK Government now agrees to bail out the people (who are paying for bailing out the banks).”
You may recall that Business for Scotland predicted the current market instability in January this year.
In an article published on January 18 2016, we highlighted 10 signs pointing to a new UK recession in 2016/17.
Included in those were points 4, 5 and 10, which sum up where we are right now.
4) Until recently, those that can afford to do so have been de-leveraging their personal debt. Whether it was confidence borne from a return to reasonable pay rises or low inflation, or just people wanting to spend again for Christmas, personal debt has risen 40 per cent in the last six months. Aviva found that the average UK household now owes a staggering £13,520, up £4,000 from the last quarter. This means rather than the banking credit crunch we are entering into unchartered personal credit crunch territory. Hence why I have been banging on about bailing out the people not just the banks. The growth Osborne is boasting about has been borrowed at store card-rates of interest and if consumer spending falls significantly in the first half of 2016, as it must, then it’s time to man the lifeboats.
5) Oh wait we don’t have any lifeboats. Key central banks around the world, not just the UK’s, have used up all of their reserves bailing out the banking system and interest rates can’t go any lower.
10) The UK may vote to leave the EU and that will cause stock markets to panic and lose faith in the whole European picture, and Sterling’s stability would be severely threatened. A vote to leave the EU would be the equivalent of the UK economy hitting an iceberg and remember that we have no lifeboats.
Other signs identified in the article were:
Overheating property prices in London and South East.
Housing, tax increases on buy-to-let transactions due to take effect in 2017 will slow demand.
A slowing in wage growth leading to consumer spending slow down
A slow down in emerging markets interest rates can’t rise due to too much debt
A lessoning of the downward pressure on inflation from oil prices
A failure to properly restructure the banking sector to make it more shock proof
The fact that a slow recovery means that we may be due another slow down before the markets have fully rebounded since the credit crunch
The UK’s weak current accounts and related balance of trade, which were more of a problem for the UK than its much feared debt-to-GDP ratio
Also you might want to cast your eye over our article on Time for Quantitative Easing for the people from July 2015 .