Canada's Trade Agreement with the EU

Canada and the EU have now completed the Comprehensive Economic and Trade Agreement known as CETA, requiring all EU member states to endorse it.
The UK can see this as a positive endorsement of the soft exit approach where a trade agreement can be reached without having to give any 'sovereignty' away.

The down-side here is that this deal took seven years of negotiation, nevertheless people are now asking if this could be a template for trade between the EU and BREXIT UK.
The deal with Canada means that most trade tariffs will be waived, allowing the EU to trade freely with Canadian businesses. The cost of the deal will have been some concessions made to the French-speaking Belgian region of Wallonia, who had concerns about competition for their farmers. The details of the deal don't seem to be public yet, but apparently the deal in temporary format will be signed off by all 28 member states over this weekend. Subsequently 38 national assemblies will have to ratify the agreement for it to be come a permanent legal document.

Although in some quarters, this is being heralded as a sign that the UK will be able to negotiate in the same way, the process will be lengthy and we don't know what obstacles will have to be overcome, and what compromises we might have to make.

Hard BREXIT Vs soft BREXIT

Having completed my introductory post regarding Brexit and trying hard not to let it degenerate into a rant..The first question this blog is going to look at is:

 'What are the choices? Hard or Soft?'

So the first point to make is this: Will there be a choice?' and you have to say that it is in itself a question worthy of it's own discussion.
Whether Europe will be open to a 'negotiated' exit or not is difficult to gauge because each member state may have a different stance, which may show us which other states might have their eye on leaving too. But taken as a united body, the noises coming out of Brussels indicate that the UK will have to quit altogether (A 'hard' exit). It is in the interests of the EU to imply at least that there will be no negotiation, as the first step of...well...the negotiation.

I imagine that the other member states will be interested in keeping trade links intact, they won't want to cut the UK off as the UK buys a lot of stuff from member states. Of course, if the EU doesn't negotiate as a whole, then the UK would be free to negotiate individually with each nation separately - which is really not what they want either. I would assume there are measures already in place to stop member states negotiating deals that the EU would disapprove of, but clever lawyers would no doubt be looking for loopholes and looking to circumvent the rules.

So let's assume that there will be something to negotiate...and get back to the 'Hard or Soft issue'.
In a nutshell then, a Hard exit would be to ditch any EU rulings and trade internationally through the World Trade Organisation. No single market access, no interference in UK immigration or indeed any other area of trading or law-making. Your basic 'back to square one' approach.
The Soft option however is more like a EU membership in all but name kind of approach where there will be freedom of movement of goods, people, capital and services pretty much like it is now. I guess the major difference will be in the law-making department, certainly the UK would no longer be subject to the rulings of the European Court of Justice.
The likelihood is that there will be a 'soft' exit where all parties can trade relatively easily - this will suit most parties involved in the discussions.

There remains though, some huge questions around free movement of people - which the BREXIT voters will be keen to point out was a major player in the NO vote. Also, we are being shown how hard-line the EU can be with it's attitude towards Canada's request to be a trade partner. It's difficult to call at this time, it's going to depend on how the big characters in the EU want to play it. We are definitely in 'make it up as you go along' territory, no-one has done this before, and the default position will be 'Hard' exit if the negotiations come up short. However, I can't help feeling there will be some compromise especially with the suspicion that Nissan have been assured access to the single market, following on from similar investment promises from Honda earlier in the year.

Signs of recovery

I have always said that recovery from this financial crisis was always going to be slow, and I don't mean months, but years maybe 5 or 6 realistically - and that's just an indication, not a prediction. So I don't take too much regard of the 0.5% growth predicted in the UK economy, to be fair 0.5% is better than -0.5%, but equally it's not a lot to get excited about. having said that, the evidence of building work going on around us at the moment is encouraging. I walked to work four times this week, and was struck by the amount of construction work that is going on. On the other hand, I walked through some flats that had been built in the last 6 or 7 years that were intended for the upwardly mobile - however they have seemingly now become part of a large social housing project, and starting to look a little less cared for.
Savings are down, which is no great surprise seeing as there is little available in the way of return for your investment, but inflation seems to push on regardless as wages are more or less static and therefore the nett result is that we are a little worse off year on year. The way that energy prices have risen over the recession is quite unbelievable, energy companies it seems, are determined NOT to be affected by the financial crisis and continue to hold us all to ransom, squeezing every last penny out of it's 'customers' or more accurately 'victims'.
We will come out of this, but it will take time, thankfully the lower interest rates are still keeping the mortgage payments low, so I am still able to overpay my mortgage - as with most people who have a mortgage, as a nett borrower, I am happy for interest rates to be low. In the long term however, investments such as pensions are also squeezed to pitiful growth figures.

False Economy?

Whilst the economy needs steady management with long-term goals in mind, Modern politics does not really allow for long-term planning. Already the Greek population are striking against the government they only recently voted in, rebelling against austerity measures which are aimed at keeping the national economy solvent.

This feeling is not limited to the hardest hit of the European economies, grumbling about cut-backs is widespread, and if I am allowed to express opinion, I believe it is short-sighted to rebel against measures that will ultimately create a 'meaner and leaner' economy. The problem here is that the public are finding it hard to understand why the public purse has been tightened so suddenly, especially when they find themselves out of work when there are very few jobs to be had.

There needs to be a two-pronged approach, introducing more efficient use of public funds whilst enabling businesses to grow, however there is a problem in that putting more controls on bank lending means it is harder to obtain small business credit. Ironically, interest rates are at an all-time low, yet money is not avaiable to those that need it most

Here is another problem, we want to control the way that the banks take risks with loans, but on the other hand, we need the banks to fund regeneration in the economy - or do we?

With the reluctance (whether voluntary or forced) of the banks to lend out the required cash, other organisations are stepping in to lend a hand and provide a much-needed injection of cash. Maybe this will be a long-term change, a change in the way that industry is funded, maybe it will all get back to 'normal', but whatever happens, we are by no means in control of the economy yet which is why I believe only hard graft will get us back to an economic plateau, and only extraordinary diligience will stop this happening again in the future.

The struggling economy

It is no surprise to this pessimistic blogger that the western economy is still not showing the vital signs of growth. From the start, it has been blatantly obvious that this current economic crisis is NOT 'man-flu' on a huge economic scale, but a serious disease that requires not only a painful cure, but a subsequent change in lifestyle. What ails the western system is more akin to a kidney disease, not only requiring on-going dialysis, but a donor kidney and if surviving... a new healthy regime.

Whether that new lifestyle involves bringing the bankers to heel is a moot point - George Osborne (UK Chancellor) is about to argue that Europe is wrong to strangle the banking sector by capping the bonus culture. Controlling pay is certainly an odd idea for what is supposed to be a 'free economy', and although I would like to see the banks take a hit, I would prefer to see them taxed rather than shackled.
Meanwhile the investigation into 'Libor' rate rigging is extending into Europe with Deutsche Bank also coming under scrutiny, while the Euro currency struggles to keep pace with rival currencies.
Let's be blunt - right from the start (barring a few rather silly optimistic predictions) it was clear that the credit crunch was no ordinary economic 'blip', and always had the potential for fatality (of the entire economic system). Every slight recovery was welcomed as a possible 'cure' when in reality we are looking at shallow remission at best. Every dip has been hailed as evidence of political incompetence, whereas it has just been the normal course of the disease.
The disease has been one of indulgence, so maybe a liver complaint would be a better comparison, where the patient will have to lay off the booze if they want to see a future? We are not out of the woods yet, anybody with an economic clue should be able to accept this, the fact that the crisis is not playing to our political agenda of 5 year plans is just a fact we have to get used to. Western democracy has only to look 5 years into the future because that is the normal period between elections - If I had a disease that was going to take 10 years to cure, I would rather not choose a Doctor who only has 5 years left to live himself...!

What is double-dip?

It may sound like an option you might see on the sweets menu, but double dip is a sobering reality in the UK economy right now.

It has recently been announced that the long-anticipated double-dip recession is here - this gives us, initially, two questions to answer:
1) What exactly is a double-dip recession
2) What impact will it have on the economy

The answers are relatively simple whilst retaining the complexity that all things economic tend to gather around them. Economic terms are not deliberately 'woolly', but whoever wrongly termed economics as a science instead of an arts subject should be (in my humble and simplistic opinion) soundly whipped with their own economic model.
Recession is already defined in this post (click for the link) as being two straight quarters in which a decline in GDP (Gross Domestic Product) has been recorded. The most recent recorded recession has been blamed mainly on the Credit Crunch and in the UK, officially begun three years ago:
http://www.thecreditcruncher.com/2009/01/uk-in-recession.html
...and ended two years ago:

http://www.thecreditcruncher.com/2010/01/so-recession-is-over.htm
In real terms (spot the 'economic-speak'), the economy has been plotting a very wobbly course with tiny amounts of 'growth' being recorded and always threatening to drop straight back into decline.. When the figures for the last quarter were announced, it was the second negative figure in a row, therefore technically we are back in recession after a relatively short time of 'growth', and therefore we are in 'double-dip'.

So onto the second question... My own reading of the situation (for what it is worth) is that the economy although technically was out of recession for two years had never really established sufficient growth and therefore this latest headline announcement makes little difference to us. There is still not massive growth, everything is still very tentative although here and there, there maybe growth, in other places there is still decline to balance it out.
I think most economic observers will have to admit that an economy bumbling along with practically no growth, is pretty much the same as one that has just recorded a decline in growth as long as all the figures are so small.
To my mind, we are still in 'steady as she goes' mode whilst we wait for the emerging industries to shine through and the declining industries to reach their inevitable plateau.

Here's another question then... what happens if we come out of this and quickly into another period of decline - will it be triple-dip or double dip with a cherry on top?

Economy Update

The latest news is that the UK economy is managing to steer a course around the rocks of a double-dip recession. Standard & Poors have endorsed the UK by retaining their triple A rating, having previously reduced both the USA and France to double A ratings.
Although we are some way from being able to state that the economy is firmly in recovery mode, there are a few green shoots showing through. There are still going to be bouts of closures and redundancies to be endured, but the overall picture is tentatively positive.

Of course, the UK is also still 'enjoying' the extended base-rate 'holiday' as the 0.5% rate is retained for the foreseeable future. Keeping this lower rate as a long-term policy helps to reinforce the 'steady as you go' feeling that has been a feature of the UK economic recovery. Admittedly, it is not great for net investors, but I suspect that there are very few of those around at the moment..!

Bank of England meets this week

Quantitative Easing will be one of the main topics on the agenda with views spilt over whether more is needed in the light of recent tentative signs of economic stability, and uncertainty over the rate of inflation and the impact of oil price rises.

Most observers are not expecting a change to the Bank Base Rate any time soon, which is great news for some house owners (me included). When pushed on when the base rate may be raised, the general view is that rates will be stable at the all time low 0.5% for at least another 18months.

QE and base rate being two of the main weapons in the Banks armoury, it looks like a economic cease-fire might be called sending a 'steady as you go' message to the markets.

President Obama shifts the blame to Europe

Right at the start of this post, I want to make it clear that I have generally been in favour of President Obama, from this side of the pond, he looks like a great choice for US president. Intelligent and dignified are not necessarily attributes that other recent candidates can claim as their own. However, I have to take issue with his recent attack on Europe, particularly as the whole sub-prime fiasco is firmly rooted in his own back-yard.

The left-wing view has been that huge national debt is an acceptable price to pay for the mismanagement by our banks. Cut-backs have been looked upon with disdain by the socialists as if there is a way to continue to over-inflate the economy despite the glaringly obvious fact that there is nothing left to do it with unless we sell the family silver... The balanced view is surely that we must do what we can to pay down the debt including down-sizing where the markets are proving unsustainable.
I have been unemployed, so I can empathise with those that are suffering, but the truth is that the economy was over-inflated by debt - the whole of the Western economy was simply living beyond its means, shored up by bad debts. The only fix is to try and get the economy back to a sustainable size, painful though that will undoubtedly be.

Look at it like this, let's say for a simple example that the economy is 10% over-inflated - effectively we have been living 10% beyond our means for a sustained length of time. This is supported by bad debts - in other words, there is money floating around in the economy that simply should not be there, buying goods and services that we can't actually afford - persuading employers to employ 10% more workers than are sustainable. This money is secured against property that is worth less than the value of the debt. The American (Obama) solution is to try and shore up these bad debts, ie. to try and continue the unsustainable economy to the point where defaulting on the debt becomes a very real possibility.
The irony of Obama's criticism is that countries like Greece face exactly the same problems that he himself has experienced recently. It was only a few short months ago that the US itself was staring at the possibility of defaulting on it's debt. Obama has presided over the US whilst it's credit-rating has been reduced - an achievement that hardly qualifies a man to urge the rest of the world to follow his example. The situation in Europe is serious because Economic Europe has taken weak economies under it's wing believing it has the resources to protect them. The UK is outside of the European Economic currency, but will not be immune if economic collapse comes knocking.

Even Gordon Brown understood the value of 'talking up' the economy, I doubt that Obama's outburst will shake the world, but it takes a certain arrogance to put your own political ambition for re-election ahead of the stability of the world economy. I hadn't appreciated Obama the political animal until now - I stand corrected, maybe he's not the shining example, he's a politician after all..

It remains to be seen how Europe will deal with this crisis, but the majority view of the voting public is that they don't want to bail anyone else out of debt. What the individual voters in neighbouring nations don't appreciate is that much of the debt is owed to them. I have heard fellow-Europeans saying 'let them default' without appreciating that Greece now owe EUR120bn to the IMF and the European Union - In contrast many Greeks still believe that Germany 'owes them' for the damage done in WWII, so there is a strong contingent in Greece saying 'let's default'. Ironically the position of the average man in the street in both Greece and Germany is that Greece should default. The Germans not appreciating that the debt is owed largely to them - and the Greeks not really appreciating that their government is not really in a position where they can pump money into their own economy and just not bother to pay their debtors.
Of course, it's not just the Germans who are complaining, there is a strong view in the UK that we should be exempt from further Euro-bailouts as we have our own currency to protect, but it should be made clear that the UK will suffer alongside it's European neighbours common currency or not..

Double Dip Recession?

It seems that everybody is now talking us towards a double-dip recession which is probably worth a quick explanation.

Firstly, we need to understand that recession is in place when a national economy records a drop in GDP (Gross Domestic Product) for two consecutive quarters. Historically, this was announced in the UK in January 2009. A year later (Jan 2010), and the UK was officially out of recession and on course to build a slow recovery - however there is a danger that following on the heels of the fledgling recovery is a second period during which the GDP drops sufficiently for the economy to officially enter a second episode of recession before recovery has fully taken root.

At the end of the day, whether recession is announced (again) or not, the delicate balance of the economy of course is the real issue and there is little doubt that we are precariously balanced. What is more difficult to assess is what the long term prospects are.

Certainly, the economy has taken a big hit, equally certain is that the politicians will do their utmost to introduce a quick fix for their own political good, but the continuing existence of the western economies is dependent on some careful steering of the individual nations through difficult waters, and taking some measures that will not be wildly popular with the voters.

Call it double-dip, call it credit crunch or call it a depression - the name is not really important, the only thing that matters is that those with power realise that they need to put aside their personal agendas and concentrate on keeping their national economy solvent.

Related Posts:

The recession is over

The recession begins

UK GDP falls

Euro-zone troubles

In what can only be described as a short-term measure, the Central European Bank is preparing to buy up Italian and Spanish debts in an attempt to stabilise the Euro. This comes in the wake of the down-grading of the US credit-rating - which to be fair, is nowhere near as bad as actually defaulting on debt re-payments.
However, the market is jittery and some steady nerves are needed along with some strong leadership. Like it or not, you cannot spend your way out of debt, and the over-spending of recent years is starting to reveal itself.
The parallels with personal spending are obvious, we the consumers have been overspending, this has triggered government and municipal overspending, and once the debt starts to get to the unmanageable stage, some hard-hitting cuts have to be made whether you are talking about a household or as a national economy.
Member nations of the European economy must face cost-cutting head on, jobs will be forfeit as over-spending produces unrealistc demand for employment - when the spending is curbed, the jobs will go. Of course this is not a perfect model as the fallout is not limited to the specific over-spend areas, the effect will be economy wide.
It has long been my belief that much of this overspending is a result of the over-riding appetite for consumable gadgets that is prevalent in the Western economies. However, demand is so insistent, that consumer choice may dictate that gadget-related jobs can be sustained and more fundamental consumer goods manufacturing and marketing might be under threat. I'm not saying that people prefer iPads to food, but somewhere along the line, gadgets are becoming more of a necessity in the public consciousness and less of a luxury. Personally I am quite sure that this is not a good thing when along with the desire for the gadget, comes the likelihood that in 6 months time, the same piece of kit will be on eBay for a quarter of it's original price, sold to partially-fund the purchase of the next generation must-have kit (which, it turns out, the consumer can ill-afford).
The only good thing to come out of the uncertainty (if you are NOT a nett investor), is that interest rates remain abnormally low, and the BoE have not the stomach to raise them and the mortgages of half the nation along with them..

Time to remortgage

Mortgage rates are about as low as anyone can remember right now as lenders seek to entice home owners with attractive interest rates. With the slow-down in the housing market this is hardly surprising. Normally you would expect lower house prices to attract house buyers almost regardless of the mortgage rates. Sellers are seemingly holding out for higher prices and just not selling at the rate that demand dictates, therefore the market has slowed in it's activity. In order to keep the market going, lenders are having to offer great deals.

What this means, is that if you don't have a tracker mortgage, you may want to remortgage to take advantage of the low rates.

Bank base rate is still holding at 0.5%, so there has never been a better time to remortgage - this rate has persisted for nearly two and a half years now and shows no indication of rising before the end of 2011.

Some fixed deals are available for about 3 or 4%, depending on the term of the mortgage, the longer term, the higher the rate indicating the expected course that interest rates will take. Be warned though, unless you will be making an interest saving of £1000, the cost of the remortgage will be higher than the savings you can make.

There are tracker deals about too, but unless you got yourself a tracker BEFORE the rates dropped so low, this is more of a gamble. Those who managed to secure a tracker before the rate dropped, may have one that tracks about 1% or even less above base rate, however base rate is so low now, that you will be lucky to find one that tracks less than 2% above.

If you are thinking of remortgaging, by all means take a look at all the offers out there, but also get the advice of a good independent advisor. At the same time, don't be frightened to tell the advisor exactly what you want - take a wish-list with you, and ask the advisor to find a mortgage that fits your requirements.

Twice I was persuaded (against my better judgment) to go with fixed mortages, until I insisted last time that I wanted a lifetime tracker mortgage. Again it cost £1000 (I just hate those sign-on fees - which is why I insisted on a LIFETIME tracker), but we have made tremendous savings since the rate went so low. This has allowed me to overpay my mortgage for the last two years. There is a kind of financial karma in this since we have a endowment mortgage which is unlikely to pay off the loan when it matures - overpaying means there will be less of a loan to pay off. I reckon we have paid off about 6 or 7% off the principal in the last two years through overpayment, another year of this and we will have paid off 10%.

It goes to show that no-one knows what will happen over the term of a twenty-five year mortgage - it tells you to be wary of the markets, but also tells you that whilst you are on the swings now, the roundabouts are just around the corner...

Project Merlin

The idea of Project Merlin held some hope of holding the banks to account for the misery they have spread through the economy, although in reality the measures could never be as punitive as the larger population would like.
We rely too much on our financial trading to make it unprofitable, it is one of the few remaining sectors that the modern UK now excels at...

What concessions have been drawn out of Project Merlin?

• To lend more money in 2011
• To lend more to small businesses
• To pay less in bonuses than they did last year
• To be more transparent about their pay packages
• To make a greater contribution to regional economies and society.
  

Who has signed up?

• HSBC
• Barclays
• Royal Bank of Scotland
• Lloyds Banking Group

Santander have also been involved in the project

To add in some specifics, the banks that have signed up will commit to making £190bn of credit available to businesses in 2011, up by £11bn, £76bn will be made available specifically to smaller businesses.

The banks will also provide £200m capital to David Cameron's Big Society Bank, which is supposed to finance community projects, and they will provide an extra £1bn over three years to the Business Growth Fund, which aims to help small business in hard-pressed parts of the UK.

And bonuses?

To be fair the banks have agreed some realistic controls, but there is not going to be a huge reversal of the bonus culture. Millions will still be earned by the few in salaries and bonuses

Was it worth the effort?

The agreement is a realistic 'moral victory', something was required politically, and this was the result. It will not make tremendous waves through the financial sector, and as one of the leading 'industries' of the UK, it makes little sense to 'hamstring' the banks. The banks have been in the spotlight, they created much of the mess, they have been the first to see a turn-around in fortunes. It would make little economic sense to stamp on the growth that is now starting to show. On the other hand, the banks have been caught out, and made to publicly acknowledge their part in the financial crisis - it's time to move on.

Spectacular Bank Failures

Economist John Vickers, chairman of the Independent Commission on Banking has slammed the British banking sector in a speech to the London School of Economics, he said:

"Ultimately, financial risks have to be borne, and in a market system they should not be borne by the taxpayer providing a generous safety net."

This at a time where banks feel they are ready to start paying themselves huge bonuses again, many CEO's already raking in millions in so-called 'performance-related' payments. The question that the nation is asking is "what do you give back when your performance is so dismal that the nation ends up footing the biggest tax bill ever generated?", the answer is of course, a resounding 'nothing' - even those who have skulked away in disgrace have already feathered their nests to such an extent that they are in danger of choking on their own hollow affluence.

In the meantime, the nation suffers with cuts to services in every sector, industries losing workers and long-established companies failing. Whilst many will regard this as just 'politics' or 'economics', for some this is their life... Some families will suffer hardships, real hardships - the cause of which can (whether it be directly or indirectly) be traced back to foolhardy, gung-ho actions of the financial institutions.

Admittedly, the economy had become over-inflated and therefore some workers owe a few years wages to the over-inflation, nonetheless, I believe on balance, it is likely that there has been more harm done than good.

Interest rates set to rise

It looks like the Bank Of England is trying to prepare the public for a rise in interest rates back up to what it feels is a normal level - which will mean the rates returning to a level of about 5% from the current 0.5%...

BoE official Paul Fisher is quoted as saying:

"...what we need to do is to trigger the mindset in people that that's where rates will eventually go back to,"

As if 'people' were stupid enough to think that this artificially low figure is the norm... I would have thought that the message would have been loud and clear if the BoE simply raised the level by 0.25% or 0.5% rather than just talked about it... If they were worried about 'people' panicking, they could have always stated that their 'target' figure is 5% at the same time as announcing an actual raise.

The way this has been done makes it sound like they are unsure of the impact of raising the rate and want to get an idea of what the reaction will be before they do it. The likelihood is that the raise will be implemented in small steps, but no indication whatsoever is given over how long this will take.

The background to policy changes are a relatively static economy showing little growth, a low sterling market value and creeping inflation - with the VAT hike about to strike, one must question the impact this statement by Paul Fisher will have on the householder. There is not much in the economic climate that is going to encourage householders to part with their cash (other than Christmas, which as far as I am aware is not as a result of Government policy..)

Personally, I think we are still in uncertain territory here in economic terms with the threat of the dreaded 'double-dip' still a possibility. I am making the most of the low interest rates by overpaying my mortgage, not by consuming more goods - any change in the interest rate for me will just mean an adjustment to my overpayment.

£7bn from UK to bail out Ireland

Chancellor George Osborne has said that Britain was prepared to commit seven billion to the Irish bail-out plan. The EU and IMF agreed on Sunday to help bail out Ireland with loans to tackle its banking and budget crisis in a bid to protect Europe's financial stability.

"What we have committed to do is to obviously be partners as shareholders in the IMF in an international rescue of the Irish economy,"

Osborne told BBC Radio 4....

"But we have also made a commitment to consider a bilateral loan that reflects the fact we are not part of the Euro ... but Ireland is our very closest economic neighbour."

Osborne was questioned about reports that Britain was going to contribute around seven billion pounds to Ireland, he replied:

"It's around that (figure), it's in the order of billions not tens of billions but the details of the entire package, not just the UK contribution, but the euro zone and IMF contribution, that is all being worked out as we speak and we should by the end of the month have the details on that."

Osborne was keen to stress that Britain should not have to provide further help to Ireland or any other Euro zone countries that got into trouble. However this contribution by Britain is causing trouble at home amid an atmosphere of spending cuts - there are claims that this bail out makes a mockery of the hardships Britain will endure as a result self-imposed austerity measures. The criticism is heightened by claims that this is a problem that arguably should be resolved primarily by the Euro-currency countries.

Interest Rate warning!

Official figures just released show that the economy is growing at its fastest rate for a decade. Growth over the past six months reached 2 per cent, the fastest pace of expansion over two consecutive quarters since 2000, according to the Office for National Statistics .

Economists warned that the 'good news' could be result in interest rates rising earlier than expected. Andrew Sentance, a member of the Bank of England's monetary policy committee, said "I am in favour of gradually moving interest rates up from their very low level which I think can be done without disrupting business or consumer confidence."

Interest rates have been at historically low levels since the credit crisis took hold, with the Bank of England keeping rates at 0.5 per cent since March 2009. It had been previously reported that there would be little chance of a change before the end of next year, but on the back of yesterday's strong growth figures some economists are now predicting a base rate of at least 1 per cent by the end of 2011.

As always with interest rate rises, the bad news for borrowers is good news for savers. The majority of savings accounts currently on the market fall some way short of offering customers a decent return on investment. Recently I came across a saver who had £11return on a three year bond of £3000.

David Kern, chief economist at the British Chambers of Commerce, reminded us that we have not yet seen the real impact of the Governments deficit cutting measures. True to form, the coalition are claiming the upturn as a result of their actions whilst the previous administration claim that this is as the belated result of their actions... The truth is that few people (from either party) predicted these most recent results, and at the end of the day, the economy wends its own merry way regardless of those that believe they are at the helm of national affairs.

Inflation Steady at 3.1%

Inflation has continued to exceed the Bank of Englands target of 2%, standing at over 3% since July in line with market expectations.

Lower prices for air fares, petrol and second-hand cars were offset by rising costs for clothing, footwear, food and drinks. For individual families, the worrying trend indicated here is the fact that 'luxuries' are getting cheaper, necessities are becoming more expensive...

The BoE have continued to hold the base interest rate at 0.5% (as they have for the last 19 months), but opted against pumping out more cash. Nevertheless, the threat of the return of 'Quantitative Easing' is ever-present. To date, the bank has injected £200 billion into the economy, by purchasing government bonds and high-quality private sector assets to boost lending.

Base Rate holds at 0.5%

The record low rate of 0.5% is set to stay for another 12 months or so according to best estimates. It is felt that 2011 could see a rise, but it is far too early to make a realistic prediction.

This is good news for variable rate mortgage owners, but I guess a bit of a sickener for those with a fixed rate, as it looks unlikely that they will get any benefit from their fixed rate for quite a while. Of course, most new mortgages are fixed rate as the bank have no wish to pass on the benefits of the Bank of England base rate. This in itself is a topic worthy of a great deal of debate....

For those who are benefiting from a variable rate, my advice is to overpay your mortgage (subject to advice from your properly qualified advisor of course!!) if you can. I switched to a variable rate mortgage shortly before the financial crisis took hold, so my repayments are extremely low. However I have taken the step of deliberately paying a similar rate to what I was paying before the crisis in an effort to pay off more of the principal debt.

The uncertainty around what will happen to the rate is heightened by the uncertainty about the knock-on effects of Government cutbacks which must be made by this new administration.

The mood for now seems to be 'steady as she goes' as we launch our economic ship into uncharted and potentially stormy seas...

Our 'shallow' economy

I don't really want to come across all left wing and anti-capitalist, but there is a worrying element to the drivers behind the Western economy that may indicate that it is becoming unsustainable.

In thinking about what drives us to earn and consume, it is becoming clear that it is 'unsustainable' consumer behaviour that drives larger and larger sections of our economy. These can be illustrated by the clamour to posess the latest 'Apple' product whether it be a phone (never knowingly advertised as a device for making phone calls of course..) computer, or media player. It is also illustrated by our taste in transport, ever faster, slicker, uber-designed capsules for transporting us around the globe - in reality used for dropping the kids off at school and getting in the shopping. Do we need to spend between £10,000 and £20,000 for a main vehicle let alone a 'second' car that will be the kids taxi and motorised shopping cart?
Have you also noticed that a TV used to cost a little over £100, yet now you can get a 'bargain' widescreen HD-ready TV for just £500?

Don't get me wrong, I am not knocking consumerism, I am a 'victim' and active participant... I am trying to point out that one day we might wake up to the reality, and stop buying these luxuries, at which point, our entire economy is in danger. The additional point to make is that the products themselves are contributing to the demise of the species. I don't have figures for the damage done to the environment by cars alone, but you don't have to be a greenpeace protester to be aware of these facts:

• We have too many cars
• Cars are bad for the environment
• Any 'convenience' factor of having access to a motor vehicle is now surely seriously outweighed by the damage it does to our planet.

The problem is that the voices of reason will not be heard above the clamour for the latest gizmo or gadget that is going to make one individuals life so much better at the expense of everyone else. This is where democracy fails us, no politician can speak up against the manufacturers that fuel the economy. The battle can only be won, one consumer at a time...if we all stopped doing it tomorrow, the economy would stall catastrophically - every great 'empire' has it's weakness in the end - I believe that this is the major weakness in the Western World, our rapidly increasing desire for bigger, better, faster, more advanced 'stuff' will end up with consumers eventually questioning their own sanity.