Monty Python and the 0.5% base rate cut

I replied to a question posted by @wadds this morning about when the base rate economic stimulus would kick in. My answer was that the problem is there is little point in reducing the price of something that you can’t buy.

As I have said before many lenders are not passing on cuts unless they have to contractually and consumers are trapped in current deals because of reducing equity levels. The reality is therefore that for many the base rate reduction doesn’t have much impact.

For businesses it is great as long as they have a fixed margin above base rate. But with most overdraft facilities being on annual terms these margins are likely to be revised upwards offsetting the impact. That is if the facility isn’t pulled completely of course.

Hence the second part of my answer to Wadds. It is like Monty Python’s Cheese Shop sketch. What’s the point of advertising something if you haven’t got the product to sell? Quantitative easing, printing money or any other term you like to use might solve this problem though it could have its own risks. Arguably like waiving chocolate bars in front of someone who is trying to lose weight! Still it would at least mean that the shop would have more products to buy.

IMHO though the real answer lies in creating true wealth not manufactured wealth. To do this requires investment in the one part of the economy that actually creates real jobs – the SME sector. As I have also said in the past the current government has actually taken steps to discourage this not the opposite. Next month Mr Darling should announce radical tax and spending plans to boost the prospects of the engine room of the economy and link this to the government’s apparent Digital agenda. But I won’t hold my breath.

Anyway enough of this lets get to the best part of this post! For anyone who hasn’t seen this sketch before I heartily recommend it and for anyone who has it is always worth another look :-)

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