The Bank of England is the UK’s central bank and focuses on using monetary policies to control inflation and keep the economy stable. It regulates the economy of the UK, including Wales, so the BoE’s policies have a significant impact on its economy.
Wales has a similar economy to the UK, with a higher percentage of employment in agriculture, forestry, manufacturing, and government. However, the Welsh economy also depends on lower-productivity services, manufacturing, tourism, and agriculture. So, how will policies from the BoE shape the Wales economy in 2024? Let’s take a closer look.
The Situation of the Welsh Economy from 2023–2024
From 2023 to 2024, the Welsh economy faced different challenges and opportunities. Wales’s economy is deeply embedded in the UK, so outcomes in Wales depend on the same factors as in the UK.
Wales has been experiencing inflation, which has reduced its living standards, causing high energy and food prices to affect low-income and disadvantaged citizens. By the third quarter of 2023, the GDP per head in the UK was barely higher than the pre-pandemic level, and household incomes were below that level. Based on this data, you can know that the economy in Wales followed the same trajectory as the UK. Forex traders can consider this data and other information when using trading tools like TradingView to assess the market situation in Wales and the UK.
Although inflation in the UK has now fallen sharply, the Office of Budget Responsibility says it will remain high for longer than expected. At least, the unemployment rate in Wales is lower than that of England and Scotland, and the number of paid employees is higher than pre-pandemic levels, increasing in recent months.
Inflation Target and Monetary Policy
One way the BoE will impact the Welsh economy in 2024 is with the inflation target and monetary policy. The Monetary Policy Committee (MPC) under the Bank of England focuses on setting policies to stabilise inflation and keep it low, supporting growth and jobs.
The MPC’s target for the 12-month increase of the Consumer Price Index is 2%. However, unexpected shocks and disturbances might cause the actual inflation rate to stray from the target.
The BoE is working closely with Wales to promote the economy in that region. In May 2024, the BoE’s agent for Wales attended a meeting with business owners and professionals in Wales to discuss how local businesses are faring and how to help them in the economic climate.
Interest Rates and Asset Purchases
The Bank of England uses two monetary policy tools to regulate the economy of Wales. One is the bank rate, which is the interest rate that banks earn on deposits placed with the central bank. The other is asset purchases.
Like the rest of the UK, the bank rate for Wales has been retained at 5.25%. The decision of the BoE to keep the interest rate at 5.25% would affect the mortgages, credit cards and loans, and savings for citizens in Wales. Although the BoE maintained the interest rate, it hinted that it could reduce it in June if inflation falls below the target of 2%. Many trades and citizens of Wales have been supporting a rate reduction, but the bank insists on waiting until inflation is under control.
If the interest rate reduces by June, it would lead to lower mortgage payments, cheaper borrowing, higher consumer spending, support for small businesses, and increased housing demand. It can also boost tourism and reduce unemployment in Wales.
Spring Budget 2024 and Wales
The Bank of England believes that the Spring Budget 2024 has fiscal measures that would increase the GDP level in the UK. It has fiscal loosening measures and stronger population growth projections, which revised the GDP level.
But the Spring Budget 2024 has implications for Wales. The budget resulted in the Welsh government receiving an extra £170 million in funding for 2024/25 through the Barnett formula. This budget is expected to foster long-term economic growth in Wales.
The Spring Budget 2024 also reduced income tax and cut National Insurance from 9% to 6%. Furthermore, the Welsh government focused on helping small businesses grow. The budget increased the VAT threshold, releasing tens of thousands of people from paying VAT.
Outlook of the Economy in Wales with BoE
The Bank of England’s policies — like interest rates, inflation targeting, and asset purchases — indirectly affect the Welsh economy. It influences borrowing costs and investments in Wales. Business leaders in Wales will closely monitor the decisions of the Bank of England, allowing them to manage the economic performance. However, the government of Wales and the entire UK remain optimistic about reducing inflation and increasing employment.