More confusing views on the economy!
Andrew Sentance, one of the policymakers at the Bank of England, has today caught the attention of the currency markets with a suggestion that UK base rates could rise in the short to medium term. Commenting upon the potential threat of inflation he has given the biggest hint so far that UK base rates could rise, suggesting that the central bank could not "rely on goods deflation" alone to fight the threat of inflation.
Those who follow the economic indicators of the UK will be aware that inflation spiked higher in December reaching 2.9% with the currency mentioned as a prime factor. The lower the UK currency trades on international markets the more expensive imports become which will push inflation higher and higher, at least in the short term. However, the indication that UK base rates could rise to combat inflation makes sterling more attractive to investors and has today pushed the currency higher in foreign currency trading.
However, we must not lose sight that this is still a very difficult situation which will take some unravelling and we could see many difficult periods before the UK economy is back on an even keel. One thing is for certain, the ship which is the UK economy is nowhere near out of the choppy waters of the worldwide economic downturn!
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