Posted by Chris @ 1:17 PM
I'm not an economist, I haven't studied it, and I don't particular have a huge interest in it. But having lived a little, I feel I understand the basics, and it is this understanding the below is based upon.
As I understand it, we're having quite a good time of it at the moment, interest rates have been kept pretty low, and generally we've got a stable economy. Inflation is a little higher than they'd like, so a quarter point rise is on the cards for November, just to help keep us Brits from overspending and pushing inflation up further.
Now based on my understanding of the economy, tax cuts affect things. They affect things because tax cuts mean more money in the bank for ordinary folk. Consumer confidence is boosted and spending increases, increased spending pushes up inflation, and the Bank of England raises interest rates to curb this rise in inflation. So suddenly everyone's mortgage repayments are too high, they stop spending, and the BoE have to work hard tinkering with the interest rates to sort everything out, before the economy collapses. All due to a tax cut.
So then I start hearing about Tory MPs calling for new Tory leader Cameron to promise tax cuts to help them get into Government. Hmm, I get the feeling on this one Cameron is quite right not to promise tax cuts, but try and maintain economic stability. Its a shame his party have these fringe members trying to get tax cuts. Not that I like Cameron or the Conservatives, but at least his economic policy seems to be a little better that the last guy, who was promising tax cuts and increased public spending (as I mentioned at the time), now that really didn't add up!
So, am I right, does my brand of simplified economics make sense, or am I talking rubbish and a tax cut wouldn't do that much harm to my mortgage interest rate? I'd like to know.