The British surprised us at dawn with a shift in the consultation on the Brexit. Shortly after knowing the democratic verdict split,the Bank of England announced that there would be more stimulus to mitigate the effects of dreaded decision. The dramatic effects of the fear of markets and companies, have been felt quickly in Britain, so the authorities are not going to limit only to the usual monetary policies, and rub against tradition.
Beyond as possible purely monetary actions the Bank of England, the British have entered fully into the economic measures and even political, and economy minister has already announced that the government is considering lowering the corporate income tax 20% to 15%. In this article we will discuss what implications can have this alleged cut corporate tax, what other measures can be expected from stimuli BoE, and what effects can bring all these measures on the economy and on the lives of everyday mainly the British, and to a lesser extent the rest of Europe.
The Brexit comes at the worst possible moment
Let’s start putting a little in a position to understand the context and reasons leading to the measures subject of our analysis. The problem of Brexit is not only all that implies in itself, which is not bad, but the big problem is that it comes at a time when it is fashionable (without judging the correctness or not it) put on question to Europe. Not only the British raise serious questions about the future of the European project, which would not be too relevant given the traditional path Island “neither Europe nor without it”: the problem is that, even in countries with more pro- European tradition step opening new policies and opinion currents that try to blow up the foundations of European construction. Some Eurosceptics from beyond the channel cling to the Brexit is a democratic decision, and it seems that everything is decided by referendum automatically and reaches the perfection of the golden ratio. From here nobody denies the democratic process: the issue is that the mass, however majority that is also wrong, with what at what is before we are truly a big mistake, yes, democratically committed.
So Britons opt to leave. Europeans who stay and we’ll see what path they take, if the union is strength, or rats are the first to abandon ship. What really amazes server is the euro-fatality which is the fact that, paradoxically, the anti-Europeans are much more united in their Euro-skepticism of what are the pro-Europeans in Brussels . But let the economic aspects we usually bring in beyond considerations pseudo-cut political and social. The real problem is posed by the economic authorities of the old continent, and especially those of the British Isles, it is that in the economic field, the Brexit also comes at the worst possible moment.
We must not forget that Western economies wounds of the Great Recession are still licking. We can not forget that to mitigate its effects central banks and lowered interest rates to ultra-low levels, where they remain today. Achieve not forget that besides quantitative easing programs ballooned especially a huge bubble of sovereign bonds, and that remains to be seen how institutions take us out of that other mess.
And amid all this economic scrimmage, when central banks, notably the Bank of England have already taken all their artillery, and used to exhaustion all the weapons in its possession, now go and get the Brexit. In the worst political moment of a Europe without European aspirations, and in the worst economic times of a West that has already spent all their howitzers in fighting the enemy first he appeared on the horizon.The obvious question then is: What else can the Bank of England after the Brexit that has not been done after the Great Recession?
What the Bank of England will do?
What do you think will do the BoE think? Well, I do not think it surprised us with any display of economic creativity. Almost certainly after that announcement of more stimulus there is simply an intention to more of the same. That is, lower rates, or perhaps even lower rates and more quantitative easing. With the added disincentive that central banks we already have so many years so accustomed to such measures, after which can even be branded as traditional, that their effectiveness has been falling gradually over successive rate cuts and rounds of QES.
The impact on the economy resulting from the new stimuli BoE should be noted that they will stress even more the results of some banks already have spent many months supporting the strengthening of trade margins as a result of the flattening of the yield curve that bring the QES: do not forget that the bulk of the banking business is to borrow short term and lend long.
What the Bank of England might do?
With the Brexit what happens is that the UK will see mainly how the free movement of capital, goods, and people with the Eurozone may come to an end, and the seriousness of this is that the eurozone is its largest economic partner (and by far). This has incalculable consequences at all levels, but especially for imports and mainly exports to the Euro zone, both goods and services and capital. Do not forget that many global multinationals have decided to put its European operations based in the UK because aunaba a native English while opening the doors of an old continent was a full member. Let us not forget that the City is the center par excellence of the European financial world.
However, I must say that, with these arguments, there are discordant voices who say that in the long term the UK will be benefited by the Brexit, as can be read in this post NadaEsGratis the always interesting. A server is true that contemplates this scenario, but I assign a very low probability of occurrence even in the long term. Obviously, this scenario makes sense only if the British really just finally changing their tax rules, as they had at the beginning of this article that are being raised, and according to analyze in more detail in the following paragraphs.
The more that potential new difficulties to the free movement of goods after the Brexit cercenarán companies based in the British Isles. The more than likely new restrictions on the free movement of capital will make the City, or rather its customers migrate to Frankfurt, Paris or Luxembourg, something that has not gone unnoticed by these alternative destinations and are already trying to exploit as can read this article. The only possible end of the free movement of persons exporter affect both the business world and the business of the City.
So it be enough with this type of monetary policy by the BoE? I do not think so. A simple “more of the same” money will not be enough: this is not a question of restoring confidence, is a question that will no longer be part of the European market.Despite the exceptional character with a server includes measures such as ultra-low interest rates or easing quatitative, its suitability was less involved in economies of the post-Lehman era. Then what was needed was that the market regained confidence in a system that was going through a systemic crisis, worth the terrible redundancy. But the current situation has nothing to do with then, at least in Britain.
Yes that might be the case of a Europe with lack of confidence in their own European project, but do not forget that in this article we talk about what will make the institutions in the UK and the Bank of England. On the latter greater responsibility falls on the ECB, since the bulk of the harmful impact of Brexit will fall (and is falling) on the British Isles. Make no mistake, or rather, that the British were not fooled: as much to maintain low interest rates, made more massive purchases of debt, or any other measure that may undertake this terrible issue has no solution other than the British they had voted for the Brestay.
The measures that go beyond monetary policy
But the British, like us, are fully aware of the situation that is coming on them. That is why so through his minister of economy, have recognized that they are seriously considering lowering the corporate tax from 20% to 15%, as can be read in this recent news yesterday. The previous article we will make clear the effort we make from the Blog Salmon dawn to join the completeness of our analysis as a basis for taking them the freshest news (just trying to live up to our readers). But they can also be sure that this tax cut would set an unprecedented precedent in the annals of the most recent economic history: it would be the first time a Western country and is among the nations with “hearth”, opt for policies you might think that you are aligning with the usual policy of tax havens.
We will leave aside the likely intent of these statements balloon, which will surely seek to probe the business world before opting for decisive action. The question would be a preview of the effectiveness of those measures would be. But what they can give of course is that the islanders will go as far as necessary to stop the bleeding that they have started. However, I cannot hide my suspicion that, although cometary this significant tax reduction is unlikely to emerge unscathed from the fray. Obviously, not stand up with some forceful measure, no Japanese or American company with headquarters in London aims to be the hub for its European operations will stay in the British capital if no longer part of Europe pan – European rules facilitate business. No Chinese bank that wants to invest capital in Europe is going to take your money to a City from which then his movements by the old continent will be almost as burdensome as from China. But this does not necessarily imply that even plan face the problem will be fine standing.
At this point in our analysis, we must stick to the fundamentals of this matter, and remember that the ultimate intention of Britain with its paradisaical measures is simply trying to retain capital and companies that otherwise will not find sufficient grounds to stay there. The UK is not part of a scenario of tax cuts to attract new businesses to the country, and thus compensate for the loss of initial collection with the arrival of new taxpayers, but the baseline scenario is that the Brexit Britain will to incur a clear competitive disadvantage compared to their European ex-partners, which would simply offset by the reduction of corporate tax.
There would be a massive influx of new businesses, since the equation poorer access to Europe but with a 15% corporate tax is adding a very similar to the current equation full access to the European market and corporate income tax attractive 20%. With the new derivative obtained only pingüe benefit of avoiding the massive emigration of companies and capital to continental Europe, with the cost to continue to have a similar number of companies, but contribute less to the British tax coffers. The risk is possibly appearing to be get only alleviate their self-induced competitive disadvantage compared to their European ex-teammates. This view seems to all be a case of academic book of the typical tax cut that instead of increasing revenues as would have occurred after a Brestay have done it, you can probably lead to a future of lower revenue and higher deficit.
For its financial tradition, some we felt that the British had a base of national economic culture above average. But apparently something has happened overlooked by voting in the referendum Brexit. Today, the first raising a new frontier where none existed before, which is actually doing is not your bees do not escape from their hive, but bees out, as they cannot enter, they end up looking for another diaper. And in the globalized world of today there are always many more bees outside the hive than inside. The problem is that the British Isles are going to be more islands than in recent decades, and against that really neither the Bank of England, or the British government, nor any of its consolidated institutions, have absolutely nothing to do. For more reviews visit http://thefirewheel.com/