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Could UK base rates rise sooner rather than later?

Now that UK inflation stands at 3.4%, with wage rises well under 2%, there is speculation that UK base rates could start to rise sooner rather than later. But would an increase in UK base rates help the UK economy in the short-term?

The only reason to increase UK base rates at the moment would be to reduce the threat of inflation even if liquidity in the UK consumer and the UK business arenas is well below average levels. The problem is the rising cost of commodities as well as an increase in the oil price over off the last few months. These factors have come together to create what could be a nightmare scenario for the UK government and potentially derail any ongoing recovery in the economy.

Only a few weeks ago the thought of UK base rates rising above 0.5% was relatively unheard of but now many analysts are pencilling in a potential rise towards the end of 2010. However, in reality an increase in UK base rates could occur sooner rather than later if inflation shows no signs of cooling. Whichever party or parties finally make up the next UK government they will certainly have enough to keep them entertained for some time to come!

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