Interest Rates and the UK economy

Ray Barrell and Simon Kirby

National Institute Economic Review, 2007, vol. 202, 61-64

Abstract: At the beginning of 2007 inflation was in excess of its upper threshold of 3 per cent and the Governor of the Bank of England had to write a letter to the Chancellor explaining why this had happened and what measures were to be taken to remedy this. It was our opinion that interest rates had been too low for eighteen months. It was also our opinion that the Bank had kept them too low because it anticipated wrongly that inflation would have accelerated if interest rates had been inappropriately set. In August 2005 the Bank of England cut interest rates by a quarter of a point, and held them at 4.5 per cent for around a year, before introducing five interest rate increases in the subsequent twelve months.

Date: 2007
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