In this English lesson we talk about the price of money, how loans work and lots more. Financial jargon and statistics can confuse new English language learners. So we use lots of examples to help explain English money and economic terms to help you understand some of the more common phrases that are used in business and interacting with banks. This type of English vocabulary and phrases will help you follow English financial news reporting and deal with things like banks and loans.
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I covered the UK cost-of-living crisis in podcast 534, and if you haven’t listened to that one yet it would be a good follow on lesson to this one. We all have to work with money, deal with banks and loans. So understanding the common economic vocabulary used in everyday English is really worth learning. This is especially useful if you are looking to take an IELTS exam, as IELTS examiners like to hear money and statistical terms being used correctly and understood.
As with any language, understanding the context in which we use words will help you more quickly grasp their meaning. The English language has a lot of terms that are used in business and economics. Understanding the meaning and usage of these will help you communicate more effectively with others, as well as understand what they are talking about.
- Financial: Related to money and finance.
- Jargon: Special words used by a group or profession.
- Statistics: Numbers that give information about something.
- Economic: Related to the economy, money, and resources.
- Reserve: To save or keep something for future use.
- Formulate: To create or plan something carefully.
- Mortgage: A loan to buy a house or property.
- Curiously: In a way that shows interest or wonder.
- Inflation: Prices of things go up, and money's value goes down.
- Wage: Money paid to a worker for their job.
Hi there today. Let's do a little bit more Economics. Recently in the UK, the Bank of England put up the interest rate and it was the biggest percentage rise for over 25 years. This is happening in other countries as well. So let's take some time today to understand what's happening and to give you some really good Economics and Statistics vocabulary as well.
It's useful for everyday English conversation, but it's the kind of thing that comes up also in your IELTS tests quite a bit. So this one, this podcast will be really good practice for you. And you know that all the while, your English language learning and your understanding will just be getting better and better.
Hello, I’m Hilary, and you’re listening to Adept English. We will help you to speak English fluently. All you have to do is listen. So start listening now and find out how it works.
OK. So in the last couple of weeks, the Bank of England, which despite its name is responsible for all parts of the UK, the Bank of England put up the interest rate by a half percent. So this is the Bank of England base rate from 1.25% to 1.75%. The largest interest rate rise for 25 years. "Yikes!" an English speaker might say! Other countries around the world are also raising their interest rates, including in the US, the Federal Reserve or 'The Fed' as it's known, which is the equivalent in the US, of the Bank of England in the UK. Just much bigger as you can imagine.
Digital art of a fictional Bank of England. Knowing the various English money and economic phrases will help you in your money dealings.
So let's start with the basics. What do I mean by the interest rate?
Well, if you have your own bank account, I'm sure you'll know what this means in your own language. But let me explain. If you wanted to buy a car and you didn't have the money. Say it's 5,000 pounds for a new car. Supposing you didn't have that money and you decided to borrow 5,000 pounds. Then you would go to your bank or a loan company, and you would request a 5,000 pound loan.
If the bank was happy to give that to you, you would get the 5,000 pounds, you would buy your car and then you would make repayments. So you would pay back so much a month. Now the bank or the loan company, don't just give you the 5,000 pounds because they're nice people. They expect you to pay it back. And the advantage to them is that they charge interest. So the interest is the percentage extra that you pay them, on top of the 5,000 pounds that you borrowed. And the interest rate is usually expressed as a percentage.
Interest, can be calculated on a yearly basis, a monthly basis or a daily basis. And there's different ways of calculating interest. So we have in the UK commonly, simple interest, compound interest and APR. I'm not going to go into those today. APR especially is quite complicated. I once had to write some computer code to formulate APR - took me a while! So when you look at repaying a loan, you don't just look at the amount you pay back per month. You need to look at 'How much interest am I paying over the term of the loan?' Some loans are better value than others. So how much is that 5,000 pound car really going to cost you?
And of course, when you buy a house, most people need a mortgage. Houses are expensive and you haven't got that sort of money lying around in your bank account for spare! So a mortgage M O R T G A G E that's the long- term, high value loan that you take out to buy a house or a flat.
Often it's over a 25 year period, so the amount of interest you pay back is quite a lot. The longer the term of a loan or a mortgage, the more interest you pay, but also the higher the interest rate, the more interest you pay. So the Bank of England put up the basic rate of interest, the Bank of England base rate a couple of weeks ago. You will pay more for your loans and more for your mortgage.
The actual interest rate on a mortgage will be higher than the Bank of England base rate, but whatever the Bank of England base rate goes up by, you'll pay that extra on top of what you already pay. So typically you might find yourself paying a couple of hundred pounds more each month for your mortgage because the interest rate has gone up.
If you're fortunate enough to have savings in the bank, then of course it works the other way. The interest rate goes up, the bank actually pays you for your savings. Curiously, this is never the same amount as what is charged on loans. But I guess banks have to make their money somehow. And because interest rates have been low for so long, then people with savings in the bank are quite used to not making much on the interest.
Just a reminder before I go on that if you find you're now able to speak English reasonably fluently, but you'd really like to work on your pronunciation, then our English Consonants Pronunciation Course is on sale at a summer discount price, half the usual price for the summer. So that's a really good course if you want to get your English language pronunciation much closer to that of native speakers. Iron out, those pronunciation problems.
Back to our topic. So why are banks putting up their interest rate? Why has the Bank of England done that? And other national banks around the world are doing the same thing? Why are they making things more expensive? Well, it's an attempt to manage the economy. And the problem specifically that we have at the moment is inflation, I N F L A T I O N. And of course, if you have 'inflation', it means that the prices of everything are rising. Prices are going up. Everything is becoming more expensive. And what it means for your currency - so in the UK that's sterling or the pound - it means that your currency is becoming worth less and less as time goes on.
So inflation is a problem that needs managing and it's troublesome if it gets to be too high. If you're going to have economic stability, you need to manage inflation.
And even for those people who have savings in the bank, it's little comfort if the interest rate goes up, when inflation is high. If inflation is high, then your money in the bank is worth less and less as time goes on. If you have a mortgage on your house, however, although you'll pay more for it, in time that mortgage gets proportionately smaller with inflation. But that advantage doesn't come immediately - that takes quite a time. So the value of your house may be more, but the value of your savings is less. So inflation's not a good thing. If you're a house owner, then typically you might find you're paying about two or three hundred pounds a month more for your mortgage. That's not good. Is it?
Inflation has been worryingly running at 9% in the UK. That's really high. In fact, 9% is the highest inflation rate for 40 years. Yikes again. And it's a long way from the target inflation rate, which is about 2%. It's a bit like those targets for carbon and CO2 and the environment, isn't it? We are rather a long way from them. So 9% is far higher than many economists are comfortable with.
And it's thought that inflation will rise even higher, perhaps to 13% when the higher cost of fuel kicks in, in the autumn. In the winter months is gonna be much more expensive because we're heating our homes.
OK, so inflation is a problem. Why have we got it? Where is it coming from?
Well, some of the problem is specifically British. We have Brexit. So after Brexit, we have what's known as a 'very tight labour market'. What does that mean? It means there are many more jobs than there are people to do them. And employers are struggling to find people to fill their jobs. So employees are in demand and employers are finding it difficult to fill their job vacancies, difficult to recruit in other words.
That sounds a good thing perhaps, if you're in one of those countries of the world where high unemployment is a problem. But what it means also is that there is pressure on salaries. People demand to be paid more in these circumstances ,so it fuels 'wage inflation'. Employers have to pay more for the same staff. Wage, W A G E and 'salary', S A L A R Y basically mean the same. They're what your employment pays you, your income, if you like. The word 'wage' is more associated with manual work, weekly pay, and perhaps even being paid in cash. Whereas 'salary' means that you're paid for more of a professional job and it's probably monthly and it goes straight into your bank account.
So, of course, if there are fewer people to do the same number of jobs, people are going to expect to be paid more, but also if the cost of everything is going up, then people want to be paid more to cover their costs, as well.
As I've talked about before in our podcast, one of the biggest pressures that is causing inflation at the moment is what's happening in Ukraine. So Russia's action in Ukraine is forcing up the cost of fuel and food prices as well.
So I've talked before about our 'cost of living crisis', of course. So what many people will be feeling is that the last thing they need is another pressure, which is an interest rate rise. For some people in the UK, these price rises and inflation will be really difficult. It will be hard to make ends meet, especially with these higher fuel prices.
But for people in middle income bands, what happens for them? It's not that they can't meet their bills. It's not that they can't meet their obligations. But what happens with interest rate rise is that they have less 'disposable income'. So 'disposable income' just means that portion of your money, that you can sensibly spend on nice things like holidays, house improvements, restaurants, technology for your house, nice clothes and things for your home.
So we're going to be buying less of that. In actual fact, perhaps that's better ecologically, perhaps that's better for the environment. But it's painful too. It's what many people enjoy.
So there we are - the interest rate rise. So be wary if you have any loans or mortgages, be prepared to pay more. And let's hope that those interest rate rises do their job and that inflation doesn't get to 13%. I hope it doesn't get to anything like that in your country as well. Let's hope it all starts to go right in 2023. We seem to have lurched from one crisis to another in the last couple of years, don't we?
So let's hope something nice and calm and relaxing happens in 2023 instead of high inflation and more interest rate rises. It's only August and I'm wishing for next year! Perhaps it's time to go in the garden again and forget about all of this!
Anyway, use this podcast to practise your English on these economic terms, this economic vocabulary, so that it becomes second nature to you, so that you can automatically understand it.
Enough for now. Have a lovely day. Speak to you again soon. Goodbye.
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