economonkey

Although most people have a rough idea of how the UK economy works (or, if you’re being cynical, doesn’t work), the functions of the various components and their relationships to each other can be quite elusive. We’ve covered some aspects of money on this site in the past (here, for example), but there’s more to the economy than money itself. In fact, arguably more important than money is the way in which that money is moved around the economic system of the UK.

Over the next few articles I’m going to look at each of the main institutions involved in the movement and management of money in the UK. I’ll be looking at the Treasury, the FSA, the City of London as a whole and, to start with, the Bank of England (you may have spotted the one glaring hole in this list, more important than all the rest, which I’ll cover at at a later date).

The Bank of England is not a bank in the traditional sense. You can’t deposit your money there directly, and nor can you borrow from it directly. Banks, however, can. This is the fundamental aspect of one of the Bank’s stated core purposes: to maintain financial stability in the UK economy. By lending to banks that are suffering from cash-flow problems, unusual circumstances or moronic management, the Bank can act as a buffer to prevent problems in one area of the economy spilling over into others. Hopefully.

To quote from the Bank’s own documents: “Financial stability entails detecting and reducing threats to the financial system as a whole. Such threats are detected through the Bank’s surveillance and market intelligence functions. They are reduced by strengthening infrastructure, and by financial and other operations, at home and abroad, including, in exceptional circumstances, by acting as the lender of last resort.”

You may feel a hollow laugh coming on at this point, given the last year’s experience of a crumbled, nationalised bank, a bursting bubble of overpriced housing, rising inflation - especially in food and fuel - and incomes that fail to match expenses. It doesn’t look much like financial stability, does it?

It’s hard to avoid the “house price calamity” stories in the press today, so you’ve probably already heard that UK property values are dropping at record pace right now and it’s likely that they’ve still got quite a long way to fall. If you bought at the top of the market and/or overstretched yourself in […]

The number of complaints against financial services companies rose by 30% over the past year, according to the Financial Ombudsman Serice, which says it dealt with 123,089 new complaints during the 2007/2008 financial year. Complaints about mortgages and banking services tripled, insurance complaints doubled but mortgage endowment issues fell by nearly three quarters.
Over half of […]

According to the National Association of Estate Agents, the UK property market is now ’stabilising’ - which, if you cut through the spin, simply means that a few metrics such as the number of sales agreed and the difference between asking and sale prices have remained roughly level for the past couple of months. The NAEA itself […]

Throughout the course of the UK’s insane ten year long property boom, the market cheerleaders have patiently explained that these massive increases in the cost of property are a natural result of the laws of supply and demand - the UK’s population is growing and there simply aren’t enough homes to go round. This, of […]

This article from the Scotsman highlights the difference of opinion between the Bank of England and the Treasury on what we can expect from the economy over the next year. The Bank, which is (at least in theory) independent from the goverment, claims economic growth will slow to 1.5% for 2009, while the Treasury says […]

On the first Thursday of every month the Bank of England’s Monetary Policy Commission (MPC) has a little get together to decide what to do about interest rates for that month, and a couple of weeks later the notes from that meeting are released to the press. Until recently these notes didn’t generate a lot of […]

So, despite enjoying a decade of prosperity in one of the world’s richest countries, it seems the British middle classes have suddenly found themselves mired in debt and are struggling to make ends meet. It’s easy to be at least a little sympathetic to skint people who have over extended themselves and perhaps lived a […]

Sooner or later, when considering decisions about money, you will come across the Vested Interest. In fact it’s almost impossible to avoid them. A Vested Interest (VI for short) is a person, company or organisation that wants to get its views across in order to somehow influence the people who are reading, watching or listening to them. ‘VI’ may be used to decribe the entity itself or his/her/its viewpoint.

Some VIs are obvious, some less so. I have a VI in writing this article. I’m hoping that if I make it interesting enough, and the information contained within it useful enough, more people will read it and so the traffic to this site will increase and hopefully at some point we’ll be millionnaires. Actually, it would be nice if we could make enough money for a cup of tea once a week, or perhaps cover the hosting fees. So my VI is quite transparent and, I hope, harmless.

But that is rarely the case once you get into the mainstream media. As Piers Morgan and his tipster colleagues at the Daily Mirror proved a few years ago, the temptation to use a position of public influence to push your own agenda can be overwhelming. And it’s not always illegal, either, though one might argue that it should be.

For example, of all the possible investments, the property market is not regulated by the FSA. Any idiot can call themselves a ‘property expert’ and give what is basically unregulated financial advice. And many of them have. Media people are among the most likely to be amateur landlords, so it’s not particularly surprising that the television schedules have been riddled with programmes extolling the virtues of ever-increasing property prices over the last decade. Nor are newspapers immune. The Times, for example, has carried a lot of property advertising, and has columnists who seem to believe that ‘house prices only go up’ - coincidence? Maybe.

Identifying Vested Interests will help you to decide for yourself whether a particular article is truly impartial - or as impartial as it can be - or whether you should treat it as wishful-thinking fiction. The following selections reflect my personal experiences with the media outlets concerned and are opinions only. Your mileage may vary, as they say.

The Financial Services Authority says it is frustrated by the government’s foot-dragging over new legal powers which would make it easier for the FSA to target market-abuse.
Speaking at a parliamentary inquiry into financial stability and transparency, the FSA Chairman, Callum McCarthy, also echoed Mervyn King’s earlier call for a clearer delineation of the responsibilities […]