Could the UK government risk increasing UK base rates?
Despite the fact that the UK economy is said to be on the verge of a potential double-dip recession a number of prominent economists are calling for UK base rates to increase in the short to medium term. They fear that the reincarnation of inflation in the UK is going to cause a major problem in the medium to longer term and short term pain is required to address this issue sooner rather than later.
However, there is the chance that any increase in UK base rates could effectively kill the UK property sector which is to all intents and purposes the centre of the UK economy. A reduction in property prices would see many homeowners move into negative equity and indeed an increase in mortgage rates would see more and more money drained from UK economy to cover mortgage payments. This would then reduce the profitability of companies in the UK, causing job losses and further pressure on the UK housing market.
While base rates have had little impact upon the economy for some time now, there is no doubt that an increase in UK base rates in the short to medium term would kill any potential recovery stone dead.
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