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OECD warns UK government on interest rates

The Organisation for Economic Co-operation and Development (OECD) has today warned the UK authorities that an increase in UK base rates may be required sooner rather than later. The warning is based upon fears that inflation will increase in strength over the next few months which could ultimately derail the UK recovery. However, over the last few days it has become apparent that inflationary pressure in the UK may be falling and concerns are starting to arise regarding possible deflation.

This is yet another mixed up chapter in the UK economic recovery with different parties fearing different events and different trends. If inflation really is a problem, which the Bank of England and the UK government does not necessarily agree with, then base rates could rise markedly in the short to medium term. However, if the flow of finance to the UK business arena and UK consumers is cut short by increasing UK base rates then we could see further pressure on the UK economy and it could be pushed back towards a double dip recession.

These are very difficult times for the UK government and the Bank of England and a misreading of the current trends could prove catastrophic to the UK economy in the short to medium term.

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