If it is demand-led inflation ie too much money chasing the same amount of goods then this is believed to be the case as: 1, it makes money more expensive to borrow (and the Economic Gods think people look at Interest Rates before spending); and 2, people are more likely to save than spend with higher Interest Rates (the Economic Gods actually think a 0.25% rise in interest rates will make people save). Both of these are believed to reduce the amount of money chasing the same number of goods.Pasty wrote:I thought Interest rates are raised to lower inflation!murf wrote:Inflation keeps shooting up though. Is it 4.4% now? Rare for it to be so far from the base rate although any rise could only push it up more!Knulpuk wrote:Voting revealed as still split 6-3 with an acknowledgement that things are a lot more uncertain than they were with the Middle East, add to that Japan's woes and I would think they will not be moving rates for a while - I will stick with August as a best guess.
Lets see what whatsisface says in the budget...
On the down-side it deters industry\businesses from borrowing so it can reduce the number of goods produced. If this mirrors the reduction of the amount of money chasing the goods then can inflation can be unaffected. It is worth noting that imports need to be considered, and the impact of the Interest Rate change on Exchange Rates. Higher Interest Rates will make investing\lending in Britain more attractive, so pushing the pound up, as more people want to buy them, to invest\lend here. This will make imports cheaper, and exports dearer........
However, the current inflation is probably still fuel-price driven, so increasing Interest Rates will mean pretty much zilch.
Incidentally Agriculture has gone through a mini-boom as foreign produce has become more expensive due to the fuel prices hitting shipping prices.
Personally I think 1 and 2, above are pants, as people's access to credit and their willingness to borrow\save are more relevant. The first is Bank-driven, and the second strongly related to their perception of their Job Security.