Are the MPC taking inflation seriously?
Yesterday's revelation that one member of the MPC voted in favour of increasing UK base rates to 0.75% surprised some analysts although others believe the MPC may not be taking the threat of inflation seriously enough. So what impact would inflation have on the UK economy?
Inflation, if left to spiral out of control, has a massive impact upon the relative spending power of the UK population. The higher the rate of inflation the more prices need to rise to cover higher wages, higher costs and ultimately we move towards a very difficult and potentially very damaging upward spiral. At some point prices rise too far and consumers will not be able to afford products and services and the whole economy could potentially collapse!
The situation with regards to savers is also very challenging because ultimately if rates on savings accounts are less than inflation, which many are, then ultimately this is eroding the spending power of savers. When you consider that many savers are moving towards retirement this could seriously damage their wealth going forward and place more pressure on the UK benefit system with more and more pensioners needing assistance from the state. So yes, inflation does need to be taken seriously!
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