Projected Recovery And The Base Rate
Does a projected recovery mean we will see an immediate increase in the Bank Base Rate
Along with many economic analysts The Bank of England are predicting a slow recovery with an increase in GDP (Gross Domestic Product) by the end of this year or early next assisted by the quantitative easing measures taken totalling £175 billion worth of asset purchases. The question is will we see CPI (Consumer Price Index) inflationary pressure grow beyond targets set necessitating remedial action by increasing the Bank Base Rate?
Possibly not, because at current projections although we may enter a period of recovery it will take a number of years for GDP to return back to levels seen at the end of 2007. This means that in the short term we will certainly continue to have spare capacity in the economy which will exert deflationary pressure. There are many other factors as always to consider, but until the gap between potential capacity and output has closed an increase in GDP on its own will not automatically mean we will see an increase in Bank Base Rate.
The Bank of England has decided to keep the Bank Base Rate at 0.5% for the sixth month in a row. To view the Bank of England's Monetary Policy Committee decisions click here.
Article Courtesy Of The Money Centre
