News Tristan on 09 Apr 2009 06:21 pm
Interest Rate Announcement Thursday 9th April 2009
The Bank of England announced the new interest rate for the following month today at midday, and in what was not exactly a shock, their decision was to hold it at it’s current rate of 0.5%.
With inflation running at 3.2%, well in excess of the Bank of England target of 2%, this does start to ring alarm bells in my ears. Clearly the economy needs a sustained period of low interest rates to restore confidence in both consumers and businesses, but will the Bank have to raise interest rates in the near future to combat inflation?
If you look at the falling value of sterling against the dollar, you can see why inflation is set to continue to rise in the near future - the relative increase in the price of energy. Hang on a minute, aren’t oil prices much lower than they were this time last year? Well, yes they are, however, in sterling terms, energy is getting more expensive, because we have to buy dollars to buy the energy.
There is something that could be done to release the pressure on the Bank of England, they could start to use the RPI, which is currently much lower than the CPI thanks to it taking into account mortgage interest into its calculations which consumer prices index does not.
