Brexit, migration, geopolitical tensions and debt. They’re the big issues that are fuelling economic uncertainty, according to the Central Bank’s latest Macro Financial Review.
The scary thing is that of the four issues identified, there’s only one on which we can have any impact – debt.
The first three are external and entirely out of our hands. And that’s a pretty frustrating place to be in.
War and migration need European if not global action.
The most pressing issue here is of course the prospect of a British exit from the EU.
Sharon Donnery, the recently appointed Central Bank deputy governor, stressed that officials in Dame Street are focusing their efforts on preparing to deal with the fallout if it happens.
The Bank is on top of contingency planning and is liaising with businesses and financial firms to ensure they’re prepared for any impact, particularly around currency, she said.
But the bank can do little to stop sterling plummeting should British voters opt to pull out. And in the long-term, how can you plan for an eventuality that has no precedent?
In reality, its efforts will be largely focused by way of the European Central Bank, which is expected to step forward and publicly pledge to backstop financial markets, in line with the Bank of England, should a Brexit occur. Ms Donnery hinted as much yesterday when she talked about the need to provide liquidity.
With so much out of our hands, more needs to be done to deal with the one problem we should be able to get better control over. And that’s our debt.
Public debt, while falling, remains high. And it’s the debt-to-GDP ratio that’s falling, not the debt pile itself. Over-indebtedness in the private sector is also a concern.
It still stands at 240pc of GDP, which is both high by historical and international standards.
High legacy debts make us particularly vulnerable to any external economic shock. We aren’t out of the woods yet.
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