As defined by economic theory when there is positive economic growth in the economy, like the UK has now, there should be high rates of inflation also. However in the UK's case, it appears that the economy an opposite effect has been had as inflation currently stands at 0%, hence indicating that growth is being driven by other factors.
The Bank of England introduced a historic low interest rate of 0.5% six years and this rate has stood since. This figure was introduced during the global recessionary period as a way of stimulating growth in the economy through greater confidence and consumption. This was because with a low interest rate, borrowing also became cheaper and hence it was believed that this would increase consumption of highly priced goods and although this occurred, indicated by the great demand for houses and their rapid rise in prices, inflation still remained low.
As a consequence of this the Bank of England is now contemplating whether to reduce the interest rate further in order to stimulate growth in the same way as they did a few years ago. Speculators are also say that it is possible that the Bank of England make their interest rate negative and this in turn will banks will charge people to store money in their banks and hence provide a greater urge to spend.
There seems to be more reason for this further drop in the interest rates as the UK is currently in the longest every recessionary period in UK's economic history. Economists predict that surveys carried on the manufacturing and construction industry's output suggest that growth could possibly slowdown in the months to come and therefore it is unlikely that inflation is going to rise and so a lower inflation rate would be the best solution out of this economic predicament.
For more information visit:
http://www.bbc.co.uk/news/business-34291815
The Bank of England introduced a historic low interest rate of 0.5% six years and this rate has stood since. This figure was introduced during the global recessionary period as a way of stimulating growth in the economy through greater confidence and consumption. This was because with a low interest rate, borrowing also became cheaper and hence it was believed that this would increase consumption of highly priced goods and although this occurred, indicated by the great demand for houses and their rapid rise in prices, inflation still remained low.As a consequence of this the Bank of England is now contemplating whether to reduce the interest rate further in order to stimulate growth in the same way as they did a few years ago. Speculators are also say that it is possible that the Bank of England make their interest rate negative and this in turn will banks will charge people to store money in their banks and hence provide a greater urge to spend.
There seems to be more reason for this further drop in the interest rates as the UK is currently in the longest every recessionary period in UK's economic history. Economists predict that surveys carried on the manufacturing and construction industry's output suggest that growth could possibly slowdown in the months to come and therefore it is unlikely that inflation is going to rise and so a lower inflation rate would be the best solution out of this economic predicament.
For more information visit:
http://www.bbc.co.uk/news/business-34291815
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