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The Bank of England may increase the interest rate taking the surging inflation and housing market crash into account.
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The Bank of England may increase the interest rate taking the surging inflation and housing market crash into account.
London(Online-Unsecured-Loans) July 21, 2008: Inflation intensified doubts regarding whether the Bank of England can cut interest rates to prevent a sharp economic slowdown. The news that consumer price inflation(CPI) increased more than expected to 3.8 percent in June from 3.3 percent in May along with troubled housing market forced the consumers to cut their spending. "The UK economy probably is slipping into grips of recession or about to. Even so, it seems very unreasonable that the Monetary Policy Committee will cut rates near-term given the extent to which inflation is increasing," said Michael Saunders of Citigroup. Adding on the impact of Inflation he said - "The MPC may probably hike rates if the economy were not anyway heading into a sharp slowdown or recession. They may take steps to increase the rate."
Inflation is now running at the fastest pace and the Bank of England is finding it hard to deal with since it became independent in 1997. Speaking to media persons just before the data came out, BoE policy-maker Andrew Sentance said the apex bank has to balance the economic slowdown against the risk that inflation becomes embedded because people come to expect sharp price rises of day to day commodities. "This rise generates bigger upside risks for medium term inflation, and increases the possibility that a more pronounced or prolonged slowdown in the UK economy will gradually be needed to bring inflation back to target," he said.
Like everywhere else around the world, the surging food and fuel prices were the main reason for the galloping inflation. The European Central Bank has already raised the interest rates in June to combat the threat of rising commodity prices but the BoE is also having to contend with the prospect of the realty market crash.
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