Can we really expect UK base rates to rise in the short term?
Over the last few days a number of prominent financial think tanks have issued reports suggesting that UK base rates will need to rise in the short to medium term. This comes against a backdrop of unthinkable financial distress in the UK and Europe and many people are starting to discount these calls for interest rates to rise. So will UK base rates really rise in the short term?
The worse the news from Europe gets the less chance that UK base rates could rise in the short to medium term as financial stability and liquidity in the money markets is a necessity. To increase UK base rates at this stage of the "economic recovery" could literally kill any recovery stone dead and take the UK 2 to 3 years back in time, on the brink of financial collapse. There's no way that the UK government and the Bank of England could reasonably sanction any increase in UK base rates until we at least start to see a solid base for the UK economy going forward.
There are many different opinions regarding the UK economy but ultimately nobody is forecasting a strong recovery in the short to medium term hence the reason why it is unlikely that UK base rates will rise.
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