Wednesday, February 28, 2007
US economic growth revised down
The US economy grew at a pace of 2.2% in the last three months of 2006, down from a previous estimate of 3.5% and below analysts' forecasts. The contraction came as firms cut their inventories and consumers spent less. Separate data showed new home sales fell nearly 17% in January from December, the biggest drop since 1994. Talking about the budget to Congress, Federal Reserve head Ben Bernanke reiterated recent comments that the US had to tackle its deficit urgently.
Read the full story at: http://news.bbc.co.uk/2/hi/business/6404561.stm
Consumption expenditure (C) and investment (I) constitute two of the main components of aggregate demand (AE) in the economy. A fall in these two elements will consequently lead to slower economic growth in the country's GDP. In addition, as the US administration is currently running relatively large budget and trade deficits (partly as the result of the Iraq war, but also due to escalating welfare and social security costs), these twin deficits are expected to lead to rapid growth in debt and interest payments in the future, which will be harmful for economic growth.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapters 4 and 9 (at principles and intermediate level, respectively) describe the various components of aggregate demand and illustrate the determination of national income. Chapter 8 also discusses the implications of fiscal policy for economic growth. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as a Blogcast via the website.
Thursday, February 22, 2007
UK Budget Date Announced
This year's Budget is to be held on Wednesday, March 21st. It is expected that this will be Chancellor Gordon Brown's last Budget. Critics says he has been lucky that his growth forecasts have been so accurate. One of the key issues that is worrying voters at the moment is the matter of Inheritance Tax which kicks in at £265,000. That means most home owners - particularly in the South East - will have to pay 40% tax on the remainder of their assets when they die. Property prices have risen hugely since the Labour Government won the General Election in 1997.
Read the full story at: http://news.sky.com/skynews/article/0,,30400-1252771,00.html
Favourable economic growth in the UK has enabled Gordon Brown's growth projections to be realised. The higher income, and increased taxation, has boosted tax revenue as a whole, making the government deficit and government borrowing figures look less damaging than critics expected. However, concerns about government borrowing remain, and fears of further tax rises have not subsided. Moreover, concerns are mounting over increasing numbers of people on middle incomes being drawn above higher rate income tax and inheritance tax thresholds.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The processes at work behing economic growth are explored in Chapter 8 at principles level and Chapter 17 at intermediate level. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as aBlogcast via the website.
This year's Budget is to be held on Wednesday, March 21st. It is expected that this will be Chancellor Gordon Brown's last Budget. Critics says he has been lucky that his growth forecasts have been so accurate. One of the key issues that is worrying voters at the moment is the matter of Inheritance Tax which kicks in at £265,000. That means most home owners - particularly in the South East - will have to pay 40% tax on the remainder of their assets when they die. Property prices have risen hugely since the Labour Government won the General Election in 1997.
Read the full story at: http://news.sky.com/skynews/article/0,,30400-1252771,00.html
Favourable economic growth in the UK has enabled Gordon Brown's growth projections to be realised. The higher income, and increased taxation, has boosted tax revenue as a whole, making the government deficit and government borrowing figures look less damaging than critics expected. However, concerns about government borrowing remain, and fears of further tax rises have not subsided. Moreover, concerns are mounting over increasing numbers of people on middle incomes being drawn above higher rate income tax and inheritance tax thresholds.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The processes at work behing economic growth are explored in Chapter 8 at principles level and Chapter 17 at intermediate level. Find out how to get LiveEcon at http://www.liveecon.com/. Download this blog as aBlogcast via the website.
Wednesday, February 21, 2007
January consumer prices up more than expected
U.S. consumer prices rose more than expected in January despite a dip in energy prices,
as medical costs jumped, according to a Labor Department report on Wednesday that
revived worries of inflation. Consumer prices rose 0.2 percent, while core prices,
which exclude food and energy costs, climbed 0.3 percent. The higher-than-expected
numbers raised concerns the Federal Reserve, which has said it is vigilant against any
rise in inflation, might need to eventually raise interest rates to tamp down price
pressures, rather than lower them, as markets had anticipated. The report led financial
markets to trim bets on interest-rate cuts. U.S. Treasury debt prices fell, U.S. stock
futures added to losses and the dollar rose. "This adds credibility to Fed Chairman Ben
Bernanke in his monetary report to Congress last week that inflation remains a
concern," said Richard DeKaser, chief economist for National City Corp. in Cleveland.
Read the full story at: http://www.reuters.com/article/ousiv/idUSN2019645120070221
Changes in energy and/or medical costs are supply shocks to the economy that eventually
feed into changes in the overall price level. The extent to which the impact of these
shocks is divided between changes in output or the price level depends on whether a
Keynesian fix-price or a classical flex-price world is assumed. The announcement of
higher consumer prices should make the Federal Reserve contemplate a rise in interest
rates, which would counter the inflationary pressure by raising borrowing costs for
firms. In turn, the expectation of higher US rates in the future results in foreign
exchange traders speculating by buying dollars, which increases the value of the dollar
in the present time. This illustrates the important role that expectations play in
determining the economy's magnitudes.
The much acclaimed new interactive learning package LiveEcon can help you understand
the economics behind these important policy events. The impact of supply-side shocks on
the price level of the economy is illustrated in Chapter 7 at principles level and
Chapter 16 at intermediate level. Monetary policy is discussed in detail in chapters 5
and 11 . Chapter 16 also demonstrates certain avenues via which expectations affect
prices. Find out how to get LiveEcon at www.liveecon.com. Download this blog as a
Blogcast via the website.
U.S. consumer prices rose more than expected in January despite a dip in energy prices,
as medical costs jumped, according to a Labor Department report on Wednesday that
revived worries of inflation. Consumer prices rose 0.2 percent, while core prices,
which exclude food and energy costs, climbed 0.3 percent. The higher-than-expected
numbers raised concerns the Federal Reserve, which has said it is vigilant against any
rise in inflation, might need to eventually raise interest rates to tamp down price
pressures, rather than lower them, as markets had anticipated. The report led financial
markets to trim bets on interest-rate cuts. U.S. Treasury debt prices fell, U.S. stock
futures added to losses and the dollar rose. "This adds credibility to Fed Chairman Ben
Bernanke in his monetary report to Congress last week that inflation remains a
concern," said Richard DeKaser, chief economist for National City Corp. in Cleveland.
Read the full story at: http://www.reuters.com/article/ousiv/idUSN2019645120070221
Changes in energy and/or medical costs are supply shocks to the economy that eventually
feed into changes in the overall price level. The extent to which the impact of these
shocks is divided between changes in output or the price level depends on whether a
Keynesian fix-price or a classical flex-price world is assumed. The announcement of
higher consumer prices should make the Federal Reserve contemplate a rise in interest
rates, which would counter the inflationary pressure by raising borrowing costs for
firms. In turn, the expectation of higher US rates in the future results in foreign
exchange traders speculating by buying dollars, which increases the value of the dollar
in the present time. This illustrates the important role that expectations play in
determining the economy's magnitudes.
The much acclaimed new interactive learning package LiveEcon can help you understand
the economics behind these important policy events. The impact of supply-side shocks on
the price level of the economy is illustrated in Chapter 7 at principles level and
Chapter 16 at intermediate level. Monetary policy is discussed in detail in chapters 5
and 11 . Chapter 16 also demonstrates certain avenues via which expectations affect
prices. Find out how to get LiveEcon at www.liveecon.com. Download this blog as a
Blogcast via the website.
Europe Posts 2006 Trade Deficit, First in Six Years (Wed14 Feb)
Europe recorded its first trade deficit for a full year since 2000, led by soaring energy costs and worsening trade positions with China, Russia and Japan. The euro-area trade deficit of 8.2 billion euros ($10.8 billion) for 2006 followed a 16.2 billion-euro surplus for the prior year, the European Union's statistics office in Luxembourg said today, and is only the second full-year shortfall since the office began compiling the data in 1995. The trade gap in 2000 was 21.2 billion euros. The widening deficits with Asian nations may fan concern among European governments that the Chinese yuan and Japanese yen need to strengthen.
Read the full story at: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahXSwyIY_3Ko
Many countries in Europe are major importers of oil, thus making their current accounts (defined as the difference between exports and imports), and, hence, their balance of payments, susceptible to altering energy costs. In addition, developments in global exchange rates determine the competitiveness of euro-area exports, thus also contributing to the overall value of the balance of payments accounts. For example, there is much concern that the value of the Chinese yuan has fallen versus the euro, which renders Chinese exports more attractive to the consumers of Euro-land, and European exports more expensive to Chinese buyers.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapter 3 at principles levels describes the composition of national income in an open economy, while Chapters 13 and 14 integrate the open economy parameters and introduce the foreign exchange market into the IS-LM paradigm. Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
Europe recorded its first trade deficit for a full year since 2000, led by soaring energy costs and worsening trade positions with China, Russia and Japan. The euro-area trade deficit of 8.2 billion euros ($10.8 billion) for 2006 followed a 16.2 billion-euro surplus for the prior year, the European Union's statistics office in Luxembourg said today, and is only the second full-year shortfall since the office began compiling the data in 1995. The trade gap in 2000 was 21.2 billion euros. The widening deficits with Asian nations may fan concern among European governments that the Chinese yuan and Japanese yen need to strengthen.
Read the full story at: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahXSwyIY_3Ko
Many countries in Europe are major importers of oil, thus making their current accounts (defined as the difference between exports and imports), and, hence, their balance of payments, susceptible to altering energy costs. In addition, developments in global exchange rates determine the competitiveness of euro-area exports, thus also contributing to the overall value of the balance of payments accounts. For example, there is much concern that the value of the Chinese yuan has fallen versus the euro, which renders Chinese exports more attractive to the consumers of Euro-land, and European exports more expensive to Chinese buyers.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapter 3 at principles levels describes the composition of national income in an open economy, while Chapters 13 and 14 integrate the open economy parameters and introduce the foreign exchange market into the IS-LM paradigm. Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
Tuesday, February 20, 2007
Bernanke: US Economy healthy, but ...
Growth is solid, but inflation remains a risk; Fed ready to take action if needed, chairman says. Federal Reserve Chairman Ben Bernanke on Wednesday said the U.S. economy appeared sound with inflation easing, as he expressed confidence the current level of interest rates would cut further into price pressures. "Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes," Bernanke told the Senate Banking Committee.
While Bernanke said the Fed's current policy stance, with overnight interest rates at 5.25 percent, was likely gradually to bring nonfood, nonenergy inflation down further, he said the central bank was prepared to act to beat back inflation if necessary.The U.S. central bank has held benchmark borrowing costs steady since pushing them up to their current level last June.
Read the full story at: http://money.cnn.com/2007/02/14/news/economy/bernanke.reut/index.htm?postversion=2007021415
Like the Bank of England and the European Central Bank, the Federal Reserve has as its main target the control of inflation, and uses interest rate setting as its monetary policy instrument. Unlike the Bank of England, however, the Fed does not have an explicit inflation band which is deemed as acceptable. The Fed is therefore holding steady with the current interest rate, expecting this level to keep a lid on inflationary pressure, but keeping a close watch on inflation as economic growth increases, ready to increase interest rates should inflation start to increase.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Monetary policy is discussed in detail in chapters 5 and 11 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Growth is solid, but inflation remains a risk; Fed ready to take action if needed, chairman says. Federal Reserve Chairman Ben Bernanke on Wednesday said the U.S. economy appeared sound with inflation easing, as he expressed confidence the current level of interest rates would cut further into price pressures. "Overall, the U.S. economy seems likely to expand at a moderate pace this year and next, with growth strengthening somewhat as the drag from housing diminishes," Bernanke told the Senate Banking Committee.
While Bernanke said the Fed's current policy stance, with overnight interest rates at 5.25 percent, was likely gradually to bring nonfood, nonenergy inflation down further, he said the central bank was prepared to act to beat back inflation if necessary.The U.S. central bank has held benchmark borrowing costs steady since pushing them up to their current level last June.
Read the full story at: http://money.cnn.com/2007/02/14/news/economy/bernanke.reut/index.htm?postversion=2007021415
Like the Bank of England and the European Central Bank, the Federal Reserve has as its main target the control of inflation, and uses interest rate setting as its monetary policy instrument. Unlike the Bank of England, however, the Fed does not have an explicit inflation band which is deemed as acceptable. The Fed is therefore holding steady with the current interest rate, expecting this level to keep a lid on inflationary pressure, but keeping a close watch on inflation as economic growth increases, ready to increase interest rates should inflation start to increase.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Monetary policy is discussed in detail in chapters 5 and 11 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Thursday, February 15, 2007
Consumers boost Japan's economy
Resurgent consumer spending helped Japan's economy to grow faster than expected in the last three months of 2006, government figures have shown. Japan's gross domestic product (GDP) grew by 1.2% in the October to December period from the previous quarter. Consumption, which makes up half of Japan's gross domestic product, was up 1.1% on the same period a year ago.
Policymakers raised the level of borrowing by a quarter point to 0.25% last July, ending Japan's long period of zero rates. All economic data is being scrutinised for clues as to whether the Bank of Japan will raise interest rates at its meeting next week. While Japan's government prefers low rates to keep the economic recovery on track, other countries are demanding a rise to counter weakness in the yen.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6363791.stm
The Japanese economy has been for some time the victim of the "liquidity trap" and effectively zero interest rates - and the consequent ineffectiveness of monetary policy instruments in lifting the economy out of recession. Strong consumer spending is now beginning to lift GDP, hence the note of caution as to the effects that an interest rate rise would have at this stage of the recovery.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The composition of gross domestic product is examined in chapters 2 and 3 and the liquidity trap in chapter 11 at intermediate level. Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Resurgent consumer spending helped Japan's economy to grow faster than expected in the last three months of 2006, government figures have shown. Japan's gross domestic product (GDP) grew by 1.2% in the October to December period from the previous quarter. Consumption, which makes up half of Japan's gross domestic product, was up 1.1% on the same period a year ago.
Policymakers raised the level of borrowing by a quarter point to 0.25% last July, ending Japan's long period of zero rates. All economic data is being scrutinised for clues as to whether the Bank of Japan will raise interest rates at its meeting next week. While Japan's government prefers low rates to keep the economic recovery on track, other countries are demanding a rise to counter weakness in the yen.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6363791.stm
The Japanese economy has been for some time the victim of the "liquidity trap" and effectively zero interest rates - and the consequent ineffectiveness of monetary policy instruments in lifting the economy out of recession. Strong consumer spending is now beginning to lift GDP, hence the note of caution as to the effects that an interest rate rise would have at this stage of the recovery.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The composition of gross domestic product is examined in chapters 2 and 3 and the liquidity trap in chapter 11 at intermediate level. Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Tuesday, February 13, 2007
UK inflation rate falls to 2.7%
Britain's inflation rates eased more than expected in January after hitting an 11-year high in the previous month. The Consumer Prices Index fell to 2.7% from 3%, according to the Office for National Statistics (ONS). The Bank of England has raised interest rates three times since August in a bid to bring inflation down to a 2% target. "This is a much more benign set of inflation data than expected, which will be of major relief to the Bank of England," said Howard Archer, an economist with Global Insight.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6355979.stm
The Bank of England has in recent months increased interest rates in an attempt to prevent the UK economy "overheating", and, although other factors (such as falls in food, transport and wholesale gas prices) also have had a part to play, their actions look to have succeeded in preventing inflation from going above the symbolic 3% threshold.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The operation of monetary policy is examined in chapters 6 (tutorial 3) and 11 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Britain's inflation rates eased more than expected in January after hitting an 11-year high in the previous month. The Consumer Prices Index fell to 2.7% from 3%, according to the Office for National Statistics (ONS). The Bank of England has raised interest rates three times since August in a bid to bring inflation down to a 2% target. "This is a much more benign set of inflation data than expected, which will be of major relief to the Bank of England," said Howard Archer, an economist with Global Insight.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6355979.stm
The Bank of England has in recent months increased interest rates in an attempt to prevent the UK economy "overheating", and, although other factors (such as falls in food, transport and wholesale gas prices) also have had a part to play, their actions look to have succeeded in preventing inflation from going above the symbolic 3% threshold.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The operation of monetary policy is examined in chapters 6 (tutorial 3) and 11 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Thursday, February 08, 2007
Booming India expects 9.2% growth
India's economy is expected to grow by 9.2% in the current financial year, according to the Indian government. The country's robust manufacturing and services sectors are forecast to drive growth at the fastest rate in 18 years. The country's stock market jumped to a record high above 14,570 points on the back of the latest figures for the 2006/07 period.
"This shows that growth is more sustainable this time around," said DK Joshi, a senior economist with rating agency Crisil. "It is backed by very high investment rate, as well as good consumption and export demand."
Read the full story at: http://news.bbc.co.uk/1/hi/business/6337433.stm
An increase in the investment rate pushes actual investment up, increasing the gap between actual investment and replacement investment. This increases the capital stock, which in turn increases output. Growth will only be sustained in the long run if the high investment rate can be sustained.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The effects of changes in the investment rate on economic growth are examined in chapters 8 and 17 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
India's economy is expected to grow by 9.2% in the current financial year, according to the Indian government. The country's robust manufacturing and services sectors are forecast to drive growth at the fastest rate in 18 years. The country's stock market jumped to a record high above 14,570 points on the back of the latest figures for the 2006/07 period.
"This shows that growth is more sustainable this time around," said DK Joshi, a senior economist with rating agency Crisil. "It is backed by very high investment rate, as well as good consumption and export demand."
Read the full story at: http://news.bbc.co.uk/1/hi/business/6337433.stm
An increase in the investment rate pushes actual investment up, increasing the gap between actual investment and replacement investment. This increases the capital stock, which in turn increases output. Growth will only be sustained in the long run if the high investment rate can be sustained.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The effects of changes in the investment rate on economic growth are examined in chapters 8 and 17 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Wednesday, February 07, 2007
US unemployment on the increase
US unemployment has risen to a four month high of 4.6% after fewer new jobs were created last month than expected. Analysts said figures showing that 110,000 new jobs were created in January were disappointing, but still reflected steady growth in the market. At the same time, a separate report showed that US consumer sentiment hit a two-year high in January. The figures will be welcomed by the Federal Reserve as they suggest US economic growth is not overheating. Noting that the economy was in "firmer" shape, the Bank opted to keep interest rates on hold at 5.25% on Wednesday.
Read the full story at: http://news.bbc.co.uk/2/hi/business/6324707.stm
The rising unemployment rate in the US suggests that the threat of wage-push inflation is still weak, as would be predicted by the conventional Phillips curve trade-off. Of course, given that consumption expenditure is a key component of aggregate demand, one would expect that the American economy should overheat in the medium/long run. In that case, the Federal Reserve would have to consider raising the baseline interest rate in order to curb any inflationary pressure from developing. Nevertheless, given that it approximately takes 2 years for the effects of monetary policy to permeate the economy, the decision by the authorities to alter the interest rate requires adequate foresight!
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapters 7 and 16 explain the dynamics underlying the trade-off between unemployment and inflation (at principles and intermediate level, respectively). Similarly, from Chapters 4 and 10 one can understand how consumption expenditure (C) affects the overall level of aggregate expenditure (AE) in the economy. Finally, the responsiveness of monetary policy is discussed in Chapters 5 and 11 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
Read the full story at: http://news.bbc.co.uk/2/hi/business/6324707.stm
The rising unemployment rate in the US suggests that the threat of wage-push inflation is still weak, as would be predicted by the conventional Phillips curve trade-off. Of course, given that consumption expenditure is a key component of aggregate demand, one would expect that the American economy should overheat in the medium/long run. In that case, the Federal Reserve would have to consider raising the baseline interest rate in order to curb any inflationary pressure from developing. Nevertheless, given that it approximately takes 2 years for the effects of monetary policy to permeate the economy, the decision by the authorities to alter the interest rate requires adequate foresight!
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Chapters 7 and 16 explain the dynamics underlying the trade-off between unemployment and inflation (at principles and intermediate level, respectively). Similarly, from Chapters 4 and 10 one can understand how consumption expenditure (C) affects the overall level of aggregate expenditure (AE) in the economy. Finally, the responsiveness of monetary policy is discussed in Chapters 5 and 11 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
Tuesday, February 06, 2007
'Strong chance' of UK rates rise
There is a "strong possibility" that interest rates in the UK will rise in February, according to a report. Research by BDO Stoy Hayward, which unites the UK's main business surveys, shows that inflation expectations have "shot to a two-year high". Despite economic growth being tipped to increase by 3% in the first six months of 2007, the report also showed a less positive outlook by firms. "Worries over further interest rate rises are starting to dent business confidence", said BDO.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6329395.stm
In addition to the effect that a rise in interest rates would have (if the central bank did take this course of action later this month) in raising the cost of borrowing and hence depressing both investment and consumption, the anticipation of an interest rate hike in itself has negative consequences. A fall in "business confidence" can in itself reduce investment irrespective of the interest rate.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The effects of changes in business confidence as proxied by autonomous investment are examined in chapters 4 and 10 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
There is a "strong possibility" that interest rates in the UK will rise in February, according to a report. Research by BDO Stoy Hayward, which unites the UK's main business surveys, shows that inflation expectations have "shot to a two-year high". Despite economic growth being tipped to increase by 3% in the first six months of 2007, the report also showed a less positive outlook by firms. "Worries over further interest rate rises are starting to dent business confidence", said BDO.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6329395.stm
In addition to the effect that a rise in interest rates would have (if the central bank did take this course of action later this month) in raising the cost of borrowing and hence depressing both investment and consumption, the anticipation of an interest rate hike in itself has negative consequences. A fall in "business confidence" can in itself reduce investment irrespective of the interest rate.
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. The effects of changes in business confidence as proxied by autonomous investment are examined in chapters 4 and 10 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com Download this blog as a Blogcast via the website.
Thursday, February 01, 2007
Manufacturing outlook 'ominous'
Almost 8,000 UK manufacturing jobs have been lost in the first month of 2007, figures from the British Chamber of Commerce (BCC) have shown. The data showed the "fragile state" of the sector and made the outlook for the rest of the year "ominous", the organisation said.
More than 2,000 of the cuts came at the Peugeot plant in Ryton near Coventry.
The BCC said it feared another hike in interest rates - currently at 5.25% - would cause more difficulties.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6317959.stm
Any further rise in interest rates by the Bank of England (a contractionary monetary policy designed to reduce inflation) would further depress investment and hence further reduce aggregate demand. The fall in aggregate demand would have obvious knock-on effects in terms of job losses and a worsening of unemployment (highlighting the so-called Phillips curve trade-off between inflation and unemployment).
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Monetray policy is discussed in chapters 5 and 11 (at principles and intermediate level, respectively) and the Phillips curve trade-off is explained in chapters 7 and 16 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
Almost 8,000 UK manufacturing jobs have been lost in the first month of 2007, figures from the British Chamber of Commerce (BCC) have shown. The data showed the "fragile state" of the sector and made the outlook for the rest of the year "ominous", the organisation said.
More than 2,000 of the cuts came at the Peugeot plant in Ryton near Coventry.
The BCC said it feared another hike in interest rates - currently at 5.25% - would cause more difficulties.
Read the full story at: http://news.bbc.co.uk/1/hi/business/6317959.stm
Any further rise in interest rates by the Bank of England (a contractionary monetary policy designed to reduce inflation) would further depress investment and hence further reduce aggregate demand. The fall in aggregate demand would have obvious knock-on effects in terms of job losses and a worsening of unemployment (highlighting the so-called Phillips curve trade-off between inflation and unemployment).
The much acclaimed new interactive learning package LiveEcon can help you understand the economics behind these important policy events. Monetray policy is discussed in chapters 5 and 11 (at principles and intermediate level, respectively) and the Phillips curve trade-off is explained in chapters 7 and 16 (at principles and intermediate level, respectively). Find out how to get LiveEcon at www.liveecon.com. Download this blog as a Blogcast via the website.
