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Andrew Sentance calls for rethink on UK base rates

MPC member Andrew Sentance has today called for a gradual increase in UK base rates as the UK economy, hopefully, moves into more prosperous ground. He is one of the few on the MPC who believe that UK base rates need to rise in the short to medium term to combat the potential problem of inflation as the UK economy, finally, begins to grow. When this gradual increase in base rates would occur remains to be seen because at this moment in time there is more downwards pressure than upwards pressure on economic growth.

One factor which could have an immediate impact on inflation is the level of sterling on exchange-rate markets. If UK base rates were to rise, or indeed the Bank of England was to give the impression that a rise was imminent, this would possibly see the pound strengthen which would potentially take some of the steam out of the inflationary run we have seen of late. However, there are many other factors which will affect the rate of inflation in the UK other than the future direction of UK base rates.

If you ask 10 different economists about the best way ahead for the UK economy, such is the confusion in the marketplace you would likely receive 10 different strategies!

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