Consumer and business confidence vital to restore British economy, says RSM partner

Consumer and business confidence vital to restore British economy, says RSM partner

RSM partner says Bank of England needs to focus on consumer and business spending to revive UK economy

Consumer and business confidence vital to restore British economy, says RSM partner

Following the Monetary Policy Committee’s meeting on Wednesday, the Bank of England (BoE) announced yesterday that the base interest will be maintained at 0.1 percent and the existing quantitative easing programme of bond-buying will be expanded with an additional £100bn.

Simon Hart, partner and head of international at RSM, says the BoE needs to provide further clarity about the UK’s economic recovery.

“Central banks in the developed economies need to have a bit of realism instilled in them and give business certainty. I don’t see how there can be a V-shaped recovery, there’s too many uncertainties.”

Predicting a “Nike swoosh recovery,” Hart says a narrative providing “more confidence as well as quantitative easing and alignment to the government’s fiscal policy” is needed by the BoE.

As UK GDP plummeted by around 20 percent in April, consumer and business confidence will be key in restoring the British economy, according to Hart.

“We have a consumer driven economy, so feeling confident that we can spend our money as we come out of lockdown is going to be vital for the UK economy,” he says. “They need to offer stability in terms of the messaging, so that UK businesses feel confident in the 2021-22 period and make investment decisions.”

The UK’s central bank will also need to consider a potential peak in consumer demand post-lockdown, likely to affect economic predictions.

“The bank must be looking at what the data might be saying over the next period and say, ‘is there going to be an uptick in demand? Or is there going to be an explosion of spending into the economy, and then it will die down again, and the economy might slip back again?” Hart says.

“It all looks quite rosy, but actually, it might go down again. And maybe that’s what the bank will do – they’ll wait and see whether there is a consumer spending spike, and then it dies down again.”

US chair of the Federal Reserve Jerome Powell warned the US Senate on Tuesday that “significant uncertainty” remained “about the timing and strength of the recovery,” adding that a full recovery was unlikely.

Welcoming the Fed’s approach, Hart says that “by doing that, they are trying to give consumers and businesses alike more confidence that they can spend more knowing that there’s not going to be high interest rates,” – a type of messaging that the BoE “should be thinking about,” he adds.

However, the central bank highlighted a positive outlook for the British economy in regards to consumer spending.

“Payments data are consistent with a recovery in consumer spending in May and June, and housing activity has started to pick up recently,” says the press release.

Further decisions from the BoE on monetary policy are expected to be announced in August.

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