Britain’s Economy: An Interest in Credit
Why isn’t the UK in the euro? A reluctance to lose the pound sterling – a symbol of national identity & independence – is only a part explanation. The Germans,French,
Italians & Spanish gave up their currencies even though they are probably far more patriotic than the British. They also agreed that the European Central Bank (ECB) in Frankfurt should fix interest rates for the whole of the Eurozone. For the British Government,this would have been (& still is) a step too far. They are not yet prepared to allow control over a significant element of the UK economy to be exercised from abroad. They also question whether having the same interest rate ( currently 4%) for countries as diverse as Portugal,Latvia, Poland & Ireland makes economic sense. Eurozone member nations have limited influence over their own ‘business cycles’.
In France & Germany,far more accommodation is rented than in Britain. Here 70% of housing is privately owned. Property acquisitions are generally financed by mortgages,so interest rates really matter. Obtaining a loan to buy a house or flat is not difficult even if the buyer’s salary is relatively low. Keeping up with the monthly payments can be the problem,especially as the Bank of England has started to put up interest rates. They are now 5.75% compared to 3.50% in July 2003. Though this is much lower than the peak of 15% under the Conservatives,it is beginning to put pressure on owners with modest incomes who might eventually have to sell or even have their homes re-possessed. The idea is to slow down spiralling house prices,though so far this hasn’t happened. Instead,landlords will start putting up rents to cover their increased costs and businesses will hesitate to borrow money for expansion,so less jobs will be created. They might even start reducing staff overheads if they see their customers being more careful with their expenditure. Interest rates affect anyone living on credit,which means almost everyone.
The British economy is currently regarded as ‘the strongest in Europe’. This ‘boom’ is assisted by the tendency of British consumers to rush out to the High Street and spend money they don’t have and isn’t theirs.There are over 1,300 different credit cards available in the UK. It’s not unusual for one person to accumulate ten or more with upper limits of £8,000. The temptations and risks are obvious. At the end of 2006,the British Bankers Association calculated total credit card debt in the UK at £55.4 billion and that around £2,500 was owed on cards by the average Briton. Many are now just using them to pay off accumulated credit. It’s a sobering thought that contributing 2.5% each month on a £1000 debt could (at the standard 14% APR) take 14 years at a cost of around £10,500. Perhaps next time we’re in a queue at Tesco’s waiting patiently while someone fumbles for their credit card (for just crisps & beer) we should suggest they try using cash instead.