The Bank of England\u2019s aim is for the country to have low and stable inflation \u2013 and it works to a target of two percent. Changing interest rates are the Bank of England\u2019s mechanism for achieving its inflation target, and in the current climate of high inflation, it believes raising rates is the right approach.<\/p>\n
Otherwise, they believe that the problem will continue to get worse and interest rates would need to be raised by a much higher amount. Of course, some may ask why they do not aim for zero inflation, but the logic is that people may delay buying things if they suspect prices will go down, and if that happens en masse, the economy could experience deflation.<\/p>\n
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However, high interest rates do cause problems for consumers, with people spending and borrowing less, and the Bank of England acknowledges that. Their logic is that by raising interest rates this will reduce down the amount that individuals and companies borrow, which in turn reduces down the demand for goods and services, meaning that companies will have to charge less for their goods and services.<\/p>\n
The Bank of England also concedes that raising interest rates has compounded many of the issues caused by soaring inflation and the cost-of-living crisis. However, it insists that if it doesn\u2019t act now, the high rates of inflation we\u2019re currently experiencing will last even longer, which would make everyone worse off in the long run. \u201cIn the end, we would need even higher interest rates to bring inflation back down to the two percent target later on,\u201d the Bank of England argues.<\/p>\n
Interest rates have been gradually increasing since the end of last year, as the Bank of England was confident that the end of the furlough scheme hadn\u2019t generated the widespread job losses it had feared. But it could not have anticipated Russia\u2019s invasion of Ukraine and its subsequent impact on gas prices, something which raising interest rates couldn\u2019t have prevented.<\/p>\n
As the Bank of England says: \u201cOur job is to react to unexpected events, and make sure that inflation comes back to the two percent target, not to pretend that we can predict them.\u201d They will have to make further difficult decisions over the coming months in order to get inflation in check, but they are left with very few options now.<\/p>\n
If you need advice and support on how to manage your money during this volatile period, please don\u2019t hesitate to get in touch with us. We\u2019re here to provide the guidance and information you need, so you can be confident you\u2019re taking the right steps to make your money work hard for you.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"
The Bank of England\u2019s aim is for the country to have low and stable inflation \u2013 and it works to a target of two percent. Changing interest rates are the Bank of England\u2019s mechanism for achieving its inflation target, and in the current climate of high inflation, it believes raising rates is the right approach. Otherwise, they believe that the problem will continue to get worse and interest rates…<\/p>\n
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