Business View: The cloud over us might just have a silver lining
We are already all too aware that the path to complete economic recovery doesn’t always run smoothly.
In the past, there’s been an economic equivalent of the romantic narrative of ‘boy meets girl and they disappear off into the sunset’, with an improving business activity bringing policy changes such as an increase in interest rates.
But the fragile nature of Britain’s recovery — and by extension, our own — means that interest rates remain at their 0.5% historic low — where they have been for five years.
Yesterday, Bank of England governor Mark Carney told MPs that rates would rise even more slowly than anticipated because of global pressures.
In June, he told the Belfast Telegraph there would be only “limited increases in interest rates at a gradual pace,” and that the Bank of England would be watching economic data closely.
Vindicating his caution, the OECD yesterday cut its forecast for UK economic growth. It now expects gross domestic product (GDP) to increase by 3% this year, down from 3.1%.
It still leaves the UK advancing faster than most — but the OECD also revised down its predictions for growth next year, down 0.1% to 2.7%. Mr Carney said the international slowdown — particularly a “spectre” of stagnation hanging over Europe — had changed the likely trajectory of rates.
The UK was “still an economy that requires monetary stimulus” — so it seems the patient’s rehabilitation will extend indefinitely. With such a cloud hanging over the economy, it’s no wonder the Treasury appears to finally be willing to give the nod to a lower rate of corporation tax for Northern Ireland.
Inevitably, the Chancellor did interpret the OECD report as bringing positive news, and he welcomed the fact that the UK’s economy is growing faster than many others.
But he acknowledged “the growing external threat that the UK faces which is why we must continue to work through the plan that is delivering a better economic future”.
We are likely to soon learn whether that plan also includes devolution of corporation tax to Northern Ireland.
While certainly not a silver bullet, it could be the Cupid’s arrow needed to send our economy off blithely into a happy sunset.