The Bank of England’s governor has repeatedly warned that it will not cut UK interest rates any time soon, even with a recent sharp fall in consumer price inflation.
Like central banks in the US and eurozone, the bank has been sharply increasing its base rate to try to tame a spike in inflation. But this has increased the interest people must pay on loans like mortgages, as well as businesses’ financing costs, leading to an economic slowdown.
Inflation has roared back around the world over the past two years after many years of “low-flation”. A period of slow consumer price growth since the mid-2010s had left central banks struggling for ways to stimulate economic activity. But how they have tackled inflation since have diverged in line with the specific issues and items driving price growth in each economy. Understanding these differences could shed light on the likely direction of interest rates in the coming months.
