Readers Question: hi, would you please state which base rate the monetary policy should be in December. Taking into account all the economic factors in the UK.
interest-rates-nov
- As you can see the Bank cut interest rates by a record 150 basis points in November. Yet, I think interest rates should be cut by another 0.5% in December to 3.0%
- The Outlook for the economy is gloomy
- Unemployment is rising sharply, and with the negative economic growth it could be reaching close to 3 million by the start of 2010 / end of 2009.
- Inflation is 5.2%, but this is really reflective of the cost push factors we experienced earlier in the year. Now that these cost push factors have been reversed, inflation will surely drop sharply. Indeed there is concern that the UK could experience deflation. Deflation would be very damaging which is why the MPC will be willing to loosen monetary policy again.
- The Pound is falling (25% against the dollar) Usually, this would be a cause for concern because a falling pound could be inflationary. But, in the current climate, the MPC are unlikely to be too worried about a falling pound. If anything it will offer some relief to beleaguered manufacturers. (Why we shouldn’t worry about falling pound)
- Housing Market continues to deteriorate. House prices have now fallen 14% and there appears no end to the decline. With rising unemployment, interest rates cuts will prevent home repossessions rising.
- As well as interest rate cuts, the government is planning tax cuts which will help to boost AD.
No comments yet.