In the past few months, inflation in the UK has halved from 10 to 4.7%. In the US it has fallen to 3% but ask an average shopper and they may express scepticism, the cost of living seems to be rising much faster. In 2021 Jordan Peterson tweeted that he believes inflation was 15% rather …
In September, the Pound plunged to its lowest level on record reaching a low of 1.03 during a day’s trading. The markets were spooked by the government’s unfunded tax cuts and likely £190 bn budget deficit. Investors viewed the Kwarteng/Truss budget as the shortest suicide note in history. Investors sold Sterling and UK bonds, creating …
Higher interest rates increase the cost of borrowing, reduce disposable income and therefore limit the growth in consumer spending. Higher interest rates tend to reduce inflationary pressures and cause an appreciation in the exchange rate. Higher interest rates have various economic effects: Effect of higher interest rates Increases the cost of borrowing. With higher interest …
The optimal inflation rate is often considered to be around 2%. For example: The UK target inflation of 2% +/-1 The ECB target inflation of less than 2% US Federal Reserve target inflation of less than 2% (But from 2020 are likely to make inflation target symmetrical like the UK) Why Central Banks wish to …
The interest rate cycle is closely related to the economic or trade cycle. In theory, movements in interest rates should mirror the economic cycle. If the economy is growing strongly and inflationary pressures increasing – Central Banks will increase interest rates to slow down the economy and prevent inflation. If the economy enters into recession …
A look at the economic effects of a cut in interest rates. Summary Lower interest rates make it cheaper to borrow. This tends to encourage spending and investment. This leads to higher aggregate demand (AD) and economic growth. This increase in AD may also cause inflationary pressures. In theory, lower interest rates will: Reduce the …
The inflation rate measures the annual percentage rise in the cost of living. (CPI) A rise in the inflation rate – means prices are rising at a faster rate. Summary of higher inflation In the short-run, it is more likely the Central bank will increase interest rates to moderate the inflation rate. Savers who have …
Readers Question: Given the widely varying fiscal policies of countries, both left and right, how come their growth rates over the long term are so close? source: World Bank To some extent growth rates are close; though it also depends which data and countries you use. However, from a very broad perspective, growth rates do …