Join the Socialist Party Join us today!

Printable version Printable version

Facebook   Twitter

Link to this page:

From The Socialist newspaper, 13 December 2007


Interest rate cut will bring no reprieve

FOLLOWING THE interest rate cut on 6 December by the Bank of England monetary policy committee (MPC) the discussion in the financial pages of the press reflects continued fears that the current downturn in the economy could lead to a recession. 2008 could be the toughest year for the British economy for a long time. It will not be the top city financiers who suffer, but ordinary working-class people.

The monetary policy committee was expected to keep interest rates at 5.75% but at the last minute was shunted into a quarter percent cut after looking at weak economic data. There was slower economic growth in the three months to November.

Growth next year is predicted to fall to 1.5% compared to 3% this year, with further interest rate cuts predicted. This financial crisis is hitting the British economy harder than others as the financial sector plays such a key role. While manufacturing industry has been decimated, the financial sector was responsible for 30% of GDP over the last three years.

The Northern Rock crisis caused by the global credit crunch is no longer a one-off problem; many banks are having problems borrowing money. This has fed through into the 'real' economy of retail sales, mortgages, house prices and debts.

As the socialist has explained over a period of time, the economic upturn had begun to fizzle out some years ago and was only kept afloat by cheap credit. Now the cheap credit is ending, to reveal an economy with significant problems. We were all encouraged to use credit as this enabled people to spend beyond their immediate income thereby keeping an already troubled economy going longer.

The credit crunch has not gone away; the inter-bank borrowing rate has increased to 6.5% making it difficult for banks and building societies to borrow money from each other to balance their books. This has impacted on a housing market which has been overvalued for some years. Successive interest rate rises (five since August 2006) were implemented to slow down the housing bubble.

House prices

Recent reports reveal the lowest number of new approved mortgages for two years and house prices falling for three months in a row. Homeowners have taken out loans based on their properties which, added to credit card and other debts, has led to people spending much more than they save and to many spending more than they earn.

Repossessions have reached a 15-year high and are set to increase further. On the one hand economists understand that housing is overvalued and needs to deflate, but they also realise that people need to continue spending.

Only days before the interest rate cut, it was expected that the MPC would leave interest rates on hold to counteract inflationary pressures fuelled by higher prices. The price of oil has rocketed. Food prices have increased and gas bills are set to rise by 15% next year to reflect higher wholesale prices. A lower value of the pound (one effect of the interest rate cut) will have the inflationary effect of higher import prices.

However, inflation usually occurs in a period of rapid growth. To be present as an economy slows is known as 'stagflation': rising prices and falling production. The Bank of England cut interest rates to attempt to slow down the fall in the economy but lower rates could boost inflation further.

Capitalism is an unplanned economic system which lurches from upturns to recessions and vice versa. All that government and central bank policies can do is attempt to slow down a fall in the economy or encourage spending to prolong an upturn. Adjusting interest rates or injecting money into the economy can only succeed for a while, if at all. A budget deficit heading for 40 billion next year will not allow the option of using public funds to offset the slowdown and will impact on government spending, adding to New Labour's problems.

A socialist society would eliminate the boom and bust cycles of capitalism by ensuring that the major companies are publicly owned and that the economy is planned under democratic control, with the profit motive replaced by production on the basis of need.

The majority pay

WHILE THE Modiva nightclub in London launches the world's most expensive Christmas cocktail at 35,000 a glass, most people will be worrying about the effect of the current economic forecast on their lives.

Higher costs of food, petrol and other goods are already impacting on people's income and train fares are set to rise above inflation next year. Homeowners are not even certain to feel any benefit from the interest rate cut as many banks and building societies will not be passing on all or any of it to mortgage payers as they need the extra money themselves. This will inevitably lead to more people losing their homes through no longer being able to keep up their mortgage payments.

Many workers, particularly in the public sector, have in effect had a wage cut this year as most pay rises were below inflation. They are likely to face similar or worse deals next year as the government intends to continue keeping public-sector wage increases very low.

In addition, private sector bosses will want to ensure that workers' wages rather than their profits suffer when production and sales decrease. An economic slowdown will also inevitably lead to job cuts.

The millionaires and billionaires who defend the capitalist economy have enough wealth to protect their living standards during an economic slowdown.

However, while the government pumped billions of pounds into Northern Rock, they will not be willing to protect ordinary people from the approaching crisis.

Working-class people will need to organise and struggle against the inevitable attacks on their jobs, pay and conditions as the economy falters.

Why not click here to join the Socialist Party, or click here to donate to the Socialist Party.

In The Socialist 13 December 2007:


Defend Tommy Sheridan: End Murdoch's witch-hunt

Tommy Sheridan: End Murdoch's vendetta

Tommy Sheridan perjury charge

Socialist Party NHS campaign

Warning: NHS cuts seriously damage your health

Manchester: Karen Reissmann sacked - and cuts still loom

Post Office dispute

Fight to save post offices

What we think

Interest rate cut will bring no reprieve

Charity begins at the bank

Every fiddle helps

Government's lying statistics

Global Warming

Thousands march against climate change

Socialist Party news and analysis

Sefton's first citizen "cheating the system"

Unite Cardiff schools campaigns

Your new police terror chief

Socialist Students

National Union of Students: Right wing force through undemocratic changes

Leicester students debate tuition fees

International socialist news and analysis

Beijing Olympics under a cloud

China: Mass protests erupt in Shenyang

Extraordinary tape destruction at CIA torture camp

Workplace news and analysis

DWP strike: Fighting the pay cuts

Birmingham city council: Workers boo 'lead balloon' councillors

Action can beat Cadbury closure threat

Newham council sack Unison chair


Home   |   The Socialist 13 December 2007   |   Join the Socialist Party

Subscribe   |   Donate  

Related links:


triangleAmber warning lights flash on British economy

trianglePowerful picture of the Port Talbot steel workers' struggle

triangleYoung people being strangled by debts

triangleNationalise to save jobs at BAE Systems

triangleTories torn - bin them now


triangleThe Socialist Inbox

triangleRough sleeping crisis: make homes, not arrests

triangleLabour council Blairites deselected

triangleTory housing policy: build zilch, hike prices


triangleRBS to sack 1,000: nationalise the banks

triangleHousing crisis: Corbyn's positive measures blanked by Labour's right

triangleThem & Us


triangleHow Blairism sank its claws into the Labour Party

triangleSocialist Party Congress 2017 reports


triangleFighting sexism, violence and capitalism - an international struggle

News and socialist analysis

News and socialist analysis



Local government pay: fight for the 5% claim, fully funded



Corbyn's Labour can defeat Tories with socialist programme



Branson sues NHS: kick out the profiteers



Royal wedding exposes them-and-us visa system



RBS to sack 1,000: nationalise the banks



Rough sleeping crisis: make homes, not arrests



End Tory war on poor



Nationalise rail now


Them & Us

Them & us



Tory housing policy: build zilch, hike prices



Make the Tories history



Birmingham bin workers win!


British economy

Amber warning lights flash on British economy



After the budget - unions must launch pay fight


Climate change

Carbon dioxide hits 800,000-year high: end profit-driven pollution

triangleMore News and socialist analysis articles...

Join the Socialist Party
Subscribe to Socialist Party publications
Donate to the Socialist Party

triangle8 Dec Local government pay: fight for the full 5% claim

triangle6 Dec Strikers rally in Liverpool

triangle6 Dec Corbyn's Labour can defeat Tories with socialist programme

triangle5 Dec Victory at Glenfield shows people power can save our NHS

triangle5 Dec Labour council Blairites deselected

triangle30 Nov Victory: Glenfield Children's Heart Centre saved!

triangle30 Nov Dramatic retelling of Grunwick strike

More ...

triangle11 Dec Leeds Socialist Party: Campaigning workshop

triangle11 Dec Bristol North Socialist Party: Christmas Quiz

triangle12 Dec Birmingham South East Socialist Party: Can the Labour Party be changed?

triangle12 Dec Liverpool Socialist Party: Fighting council cuts

More ...

Socialist Party Facebook page
Socialist Party on Twitter
Visit us on Youtube



December 2017

November 2017

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017





















Platform setting: = No platform choice