Why is making a decision on interest rates so difficult?
March 6th, 2008 by glen
A: In January, Mervyn King warned that 2008 could be a tough year for the UK economy. He forecast a slowdown as consumers tighten their belts and reduce their spending. This fuelled expectations of an interest rate cut. However, fuel prices and energy bills are high and King predicted “a period of above-target inflation”. This leaves the Bank of England caught between a rock and hard place. If rates are eased further, it could fuel inflation – but if rates stay on hold, this risks suppressing the prospects for economic growth.
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