Will Bank of England's Strategy Help Reduce the Redundancy and Unemployment Rates in UK?


The Bank of England maintained its base lending rate at 0.5% as per their announcement on the 10th March 2011; they have now held the rate at 0.5% for 24 months in a row. Although there have been pressures to increase the base rate to curb inflation, the bank has resisted the temptation.

So what does this mean for unemployment and redundancies in the UK?

It is vital to look at a few more economic factors before drawing inferences on the impact this will have on the redundancies and employment market. If we look into the latest figures of inflation, the current consumer price index i.e. inflation at circa 4% is nearly double the target that the Bank has set for itself. Higher inflation means higher costs to run the businesses and several businesses in their bid to keep afloat have to cut costs and redundancies become inevitable. The spate of increases in redundancy insurance and redundancy protection covers in 2011 is testimony to the fact that there is an increased uncertainty for people in employment. While the British Chamber of Commerce welcomed the decision, many analysts and economists worry about the growing instability of the British Pound in the international currency markets.

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UK factory gate inflation, which is a good indicator of business costs, has hit a 28-month high in February 2011. Figures from the Office for National Statistics show that producer output prices increased 0.5% on the month to an annual rise of 5.3%. Further, input prices rose 1.1% in February, taking their annual rate to 14.6%. Rising factory costs is unfortunately bad news for employment and is bound to fuel the redundancies leading to anxiety in people's mind and their rush to buy a good redundancy insurance and redundancy protection covers.

While on one hand the inflation and costs have been rising, the only thing that can help reduce redundancies is extra liquidity in the market and that is if the banks start brisk lending. The Mortgage market is a good indicator of the bank's appetite and as the figures released by the Council of Mortgage Lenders (CML), the number of new mortgages slumped by 29% in January compared to December. CML attribute the fall to "unusual combination of factors" such as government's spending cuts beginning to bite, rising inflation and increasing costs, high fuel prices etc. But nevertheless the reality remains that banks are nowhere close to the oft repeated statements by the government that they should lend more. More lending means more liquidity in the market and hopefully lesser redundancies.

Combination of low lending and high inflation coupled with the instability that brings to businesses due to stagnant Bank of England base rates, puts pressure on the businesses to continuously sharpen their pencils and cut costs. This week alone there have been major redundancies by leading companies such as Sony, universities, police, armed forces and NHS.

In these troubled and uncertain times, the only thing that people can realistically do to look after themselves is by taking support of good redundancy protection insurance. A comprehensive redundancy cover should cover all the usual bills such as mortgages, loans and rents.

It is really questionable whether the Bank of England's strategy to hold onto the base rate will really help alleviate the problem of redundancies in the UK. In the short-term, the uncertainty created by it seems to be fueling more redundancies rather than reducing the unemployment rates.

Get more information on: Redundancy protection insurance.


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