Thursday
August, 18

UK Banks Hikes Interest Rates To Contain Inflation

A member of the Bank of England’s rate-setting committee has suggested that to reduce the skyrocketing price increases, UK interest rates may need to reach 2 percent or higher next year.

Rate increases “still have some way to go,” according to Michael Saunders, in the effort to contain inflation.

Currently, the UK’s interest rates are 1.25 percent, up from 0.1 percent in December.

The rate of inflation, which measures how quickly prices grow, is currently at a 40-year high of 9.1 percent and is anticipated to increase by the fall.

READ MORE: Airlines Seek NCAA’s Permission To Impose 40% Fuel Surcharge

Borrowing becomes more expensive for families and businesses when interest rates rise. The theory is that when individuals begin to spend less, the demand for goods and services would decline, slowing the rate at which prices will rise.

However, other economists have cautioned that while rising global oil and gas costs are currently one of the key causes of inflation, increasing interest rates may not have much of an impact on it.

Mr. Saunders voted to raise rates to 1.5 percent at the most recent meeting of the Monetary Policy Committee (MPC), which determines interest rates, at the Bank of England.

Mr. Saunders, who will be leaving the MPC after the next rate decision in August, stated in a lecture at the Resolution Foundation think tank that if the Bank does not act forcefully now, it runs the risk of acting “too little, too late.”

The risks and costs of tightening “too much, too soon” against “too little, too late,” he said, must be “balanced” by the Bank.

He continued, “In my opinion, the current cost of the second outcome—not tightening quickly enough—would be relatively substantial.

As rising inflation “erodes real incomes and consumption,” the economist conceded that there were indications that economic activity was decreasing.

“This slowdown must be seen against the backdrop that the economy early this year was in surplus demand, prospective growth is low, recruiting challenges are elevated, and there is a sizable backlog of unfulfilled labor demand,” he continued.

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A member of the Bank of England’s rate-setting committee has suggested that to reduce the skyrocketing price increases, UK interest rates may need to reach 2 percent or higher next year.

Rate increases “still have some way to go,” according to Michael Saunders, in the effort to contain inflation.

Currently, the UK’s interest rates are 1.25 percent, up from 0.1 percent in December.

The rate of inflation, which measures how quickly prices grow, is currently at a 40-year high of 9.1 percent and is anticipated to increase by the fall.

READ MORE: Airlines Seek NCAA’s Permission To Impose 40% Fuel Surcharge

Borrowing becomes more expensive for families and businesses when interest rates rise. The theory is that when individuals begin to spend less, the demand for goods and services would decline, slowing the rate at which prices will rise.

However, other economists have cautioned that while rising global oil and gas costs are currently one of the key causes of inflation, increasing interest rates may not have much of an impact on it.

Mr. Saunders voted to raise rates to 1.5 percent at the most recent meeting of the Monetary Policy Committee (MPC), which determines interest rates, at the Bank of England.

Mr. Saunders, who will be leaving the MPC after the next rate decision in August, stated in a lecture at the Resolution Foundation think tank that if the Bank does not act forcefully now, it runs the risk of acting “too little, too late.”

The risks and costs of tightening “too much, too soon” against “too little, too late,” he said, must be “balanced” by the Bank.

He continued, “In my opinion, the current cost of the second outcome—not tightening quickly enough—would be relatively substantial.

As rising inflation “erodes real incomes and consumption,” the economist conceded that there were indications that economic activity was decreasing.

“This slowdown must be seen against the backdrop that the economy early this year was in surplus demand, prospective growth is low, recruiting challenges are elevated, and there is a sizable backlog of unfulfilled labor demand,” he continued.

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