The UK Knack Group would like to provide some insight into how interest rates affects employment levels. The association between the two is very easy to understand.
A larger-than-expected decrease in the monthly employment rate causes interest rates to increase.
More employed people are putting more money into circulation. An increase in available cash means there are more pounds chasing the same amount of goods as were available the previous month.
Employers like The UK Knack Group require time to ramp up operations to meet the increased demand. In order to employ additional staff, companies may have to borrow money over the short term in order to meet payroll expenses or acquire more raw materials. In the case of UK Knack Group, people are its product and this effect is more easily seen.
Lenders experience an increase in loan requests. In this case, borrowers like The UK Knack Group are increasing demand on available money which results in higher interest rates charged by the banks and other lenders.
At the same time, central government lending agencies will raise their lending rates after analysing the bond markets, a move calculated to forestall inflationary forces. Banks borrow from the central lending agencies at a higher rate of interest and pass on the additional expense to their own borrowers such as UK Knack Group.
However, lower unemployment may affect interest rates more indirectly. Companies ramping up operations are often short of employees for a time who demand higher salaries.
Higher wages may drive prices higher. Again, more money is chasing fewer goods. Inflation may result, depressing the stock market.
Companies with lower cash flows coming in may need to borrow. Once again, banks begin lending at a higher interest rate to meeting the higher demand for loans.
When unemployment rates are around the -natural rate- of around 5.5% as determined by economists, interest rates remain stable, according to UK Knack Group information. This is called -equilibrium.- When that rate decreases, interest rates go up. Similarly, when unemployment increases, interest rates go down. They are inversely related, in other words.
UK Knack Group gives an example of this process. When the unemployment rate is above 5.5%, those who are out of work cut back on expenditures, lowering demand for goods and services. For instance, a family with an unemployed salary earner is less likely to dine out at a restaurant, which in turn requires fewer staff and food for preparation.
Consequently, farming and food-distribution families cut their expenditures, further depressing demand. There are fewer requirements for goods all along the supply chain, The UK Knack Group explains.
UK Knack Group provides an example of a economic turnaround as well. An office experiences a sudden increase in demand for its services and recalls some staff.
These staff now have higher expenses related to going to work every day such as commuting costs, updating career attire, and buying meals outside the home. Transportation companies, shops,and restaurants experience a higher level of business and call back unemployed workers.
At each level, more staff put more money into circulation and everyone wants to buy something, often at a higher price than before. Credit cards, a form of borrowing, are used to pay for goods and services.
Restaurants and shops may borrow money to meet short-term current expenses. Their suppliers extend credit for a few weeks, but they must add a certain percentage as interest. Suddenly, everyone is chasing money, and increased demand, and the cost of borrowing money goes up as well.
The Knack Group UK hopes these illustrations make understanding the interplay between unemployment and interest rates easier to understand.
About Author The Uk Knack Group consists of some of the most experienced professionals in the UK and abroad who have helped thousands of businesses and people to be more successful through Executive Search and Selection, Headhunting, Transitional Outplacement, Executive Career Management and Professional Training & Coaching. www.theukknackgroup.co.uk