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Will UK base rates move in 2010?

The subject of UK base rates has been prominent in the minds of many analysts and economists over the last few months with very different views expressed regarding any potential movement in 2010. On one hand we see the UK economy struggling to pull free of the recession, with some suggesting a double dip recession, and on the other we see a surge in the rate of inflation which needs to be addressed.

The problem is that a struggling UK economy would require low base rates and a further increase in the rate of inflation would require higher base rates to throttle credit for UK consumers and UK businesses at source. As a consequence the first half of 2010 may well dictate the potential movement in UK base rates in the short to medium term. This is a very difficult balancing act which the UK government and the Bank of England will need to address sooner rather than later and ultimately if they get it wrong there could be enormous consequences to pay.

Traditional boom and bust periods of the past have been relatively easy to forecast and predict, at least in hindsight, but the latest UK recession and the credit crunch have made firm forecasts very difficult and indeed made fools of many economists over the last few months. Predicting any movement in the UK economy in the short to medium term is a very dangerous and very difficult task to take on!

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