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Understanding financial terms
Fiscal policy, macroeconomics, interest rates – the language of money can be confusing at times. And with the UK undergoing a series of rapid and complex economic pitches and turns in recent months, financial phrases and concepts have suddenly become front page news. So, if you’ve been left scratching your head when it comes to what exactly government deficit or national debt is, we’re here to help clear up some confusion and shed a little light on these terms.
Government deficit
The difference between government spending and revenue. Basically, when the government spends more money than it makes through taxes or asset sales.
Base rate
Set by the Bank of England, it’s the rate the Bank charges other banks and lenders when they borrow money. This influences the interest rates that many lenders charge for things like mortgages, loans and credit.
Consumer prices index (cpi)
A means of measuring the price level in the economy. It’s based on a collection of goods designed to reflect the average consumer’s shopping basket.
Fiscal policy
Set by the Treasury, this consists of spending and taxation measures (and the way each relates to the other) that helps the government better guide the economy. A robust and well-formed fiscal policy helps to control inflation, increase employment, and maintain the value of money.
Inflation rate
A measure of the rise in prices over a given time period such as the way certain chocolate frogs have gone up in price from 10p to 30p over the last twenty years.
Interest rate
The amount charged by lenders when you borrow money. These are calculated as a percentage of the amount loaned.
Macroeconomics
A branch of economic thinking that takes a step back and looks at the whole economic picture across a host of complicated variables, such as consumption, investment, net trade, and government spending.
Monetary policy
The primary responsibility of the Bank of England. They’re tasked with hitting an inflation target set by the government and have two tools with which to achieve this: interest rates, and the buying or selling of bonds.
National debt
The combined stock of the government’s outstanding debt.
National income
The grand sum of everything produced, earned, and spent in and by a country.
Office of Budgetary Responsibilities (OBR)
An independent body responsible for forecasting the UK’s economy. They also do deep dives and analyse the UK’s public finances. They’re a watchdog to keep an eye on whether economic reality is in step with the government’s vision.
Retail price index (rpi)
A measure of inflation similar to the CPI but differing in that it includes housing costs.
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