S1E6: How economics really affects you | The Bank of England comes for tea
We invited Bank of England economists, Rupal Patel and Jack Meaning, round to tea to ask them the big questions about economics.
Did you know?
The Bank of England holds more than 400,000 gold bars, worth billions of pounds, in its vaults but only owns two (and they’re in the museum)!
Sales of men’s underwear fall during a recession
Second-hand car sales are a good indicator of how well the economy is doing
The ONS, the Office of National Statistics, included facemasks in its ‘basket of goods’, which it uses to measure inflation, during the pandemic.
What you should remember after this episode
Studies have shown that having basic economic literacy means you’ll do better with money over the long term and has been shown to make you happier and live longer.
A basic economic principle you should keep in mind: It’s not what the price is, it’s how much your money can buy you.
E.g. Remember Freddos? When we were at school, they used to be 10p, so with 50p you could buy five. Now they cost 30p and so you can only buy one with the same amount of money.
The Bank of England is tasked by the government to keep inflation at 2% and the tools it has to do that are: raising or lowering interest rates, printing money (quantitative easing, QE), or destroying money (quantitative tightening, QT)
Inflation is not the same for everyone. The rate of inflation is an average so that’s not going to be true for every individual or even region in the UK.
Lower income households spend more money as a percentage of income on energy and food than higher income households so the inflation rate for those on the lower end of the income scale might be worse than higher income households.
Interest rates in particular are “quite a blunt tool” because they only influence the demand side of the economy. When there are demand side shocks, when there is an increase or decrease in demand for goods or services, it can be effective but when the issues are to do with supply, such as with the recent increase in energy prices, then they aren’t so useful.
People think that when inflation comes down, prices come down, but that isn't the case because lower inflation means the prices of things increase slower, but they are still increasing all the same.'
People think that when inflation comes down, the price comes down, but that isn’t the case as inflation is about growth, and it’s compounded on the years before.
Inflation erodes debt, deflation does the opposite.
Economists today are looking at different ways of measuring the economy, such as through quality of life indices, rather than just using GDP.
Next episode - should you rent or buy?
The UK is known as a nation of homeowners but is buying a house always the right choice? Jason Butler, independent personal finance expert at the FT, gives his tips for first-time buyers as well as those facing steep increases in their mortgage repayments.
