MSE News: Base rate held at 0.5%

78mjt

Joe_Bloggs wrote: »

Inflation has not risen because there is too much money chasing too few goods and services. it has risen because the value of the pound has plummeted. This puts up the cost of imported materials. This makes essential foreign imports more expensive hence price increases in certain areas. Also the export market becomes more lucrative than the domestic market. This may lead to domestic shortages as you can make more by selling the same stuff in overseas markets.

Inflation has not risen because the economy is too successful/active for the short term but rather that the economy is failing and desperate measures required a currency devaluation. This won't work if all countries tried to adopt the same strategy.

I welcome any criticisms of my viewpoint.

J_B. (Born Ignorant, still clueless )

Don't think you'll get any people disagreeing with you Joe. Whilst on the economy it's going to be interesting to see what happens to small business when VAT goes up to 20%. I work for a company that sells at a price point of £39.95. They won't be able to put their prices up as it will go above the psychological barrier of £40, which would hit sales. The result is that this small company will have to stand the cost of the increase.

Reaper

78mjt wrote: »

Whilst on the economy it's going to be interesting to see what happens to small business when VAT goes up to 20%. I work for a company that sells at a price point of £39.95. They won't be able to put their prices up as it will go above the psychological barrier of £40, which would hit sales. The result is that this small company will have to stand the cost of the increase.

This is a common tale in a recession. Companies feel unable to put prices up when demand is already fragile so any increased costs (in this case VAT but could just as easily be imported goods going up in price through a weakening currency) eat into their profit line instead.

Now this is not necessarily a bad thing in the short term. When times are booming companies can become inefficient. When profit margins shrink then companies are forced to examine their costs and trim the fat. This can mean they emerge from recession leaner and more efficient. However that only works in the short term, if it goes on too long it does lasting harm, for example laying off skilled workers it may be hard to replace in the future.

ultrawomble

78mjt wrote: »

Whilst on the economy it's going to be interesting to see what happens to small business when VAT goes up to 20%. I work for a company that sells at a price point of £39.95. They won't be able to put their prices up as it will go above the psychological barrier of £40, which would hit sales. The result is that this small company will have to stand the cost of the increase.

When VAT went down to 15% did your company lower their prices correspondingly?