On Thursday we saw the Bank of England raise interest rates to 5% to their highest level since April 2008, with some economists suggesting that they could go even higher over the next few months.
This follows the previous day’s announcement which saw the fall in inflation stalling despite the expectation that the impact of higher food and fuel prices had now diminished and, as a result, inflation would reduce quickly. That could still happen but with core inflation remaining high, there are concerns that inflation is becoming embedded into the economy.
Not surprisingly, the Bank of England has followed orthodoxy in raising interest rates to reduce spending namely that if people spend less because of the higher cost of borrowing due to higher interest rates, the inflation will fall.
