In the News

Monetary Policy - Bank of England raises interest rates from 0.1% to 0.25%

Graham Watson

17th December 2021

The Bank of England has raised the base rate from 0.1% to 0.25% - a signal that they are prepared to tackle rising inflation.

It's caught many people out, with most expecting the Bank to adopt a wait-and-see approach in the face of the Omicron variant.

The Guardian details here how a rise in interest rates is going to affect borrowers and savers. At the moment, not a lot is going to change - since 2019, 96% of mortgages taken out have been fixed rate.

Larry Elliott assesses here the reasoning behind the MPC's decision to raise interest rates, concluding that the Bank have taken the view that the risks of entrenched inflation are higher than the downside risks to growth of the Omicron variant.

It would be interesting to have an in-depth look at the MPC minutes. Is there an economic basis for this decision, or is it more of a 'finger-in-the-air' sort of calculation. I suspect that irrespective of the answer, it will always be dressed up as the former.

Monetary Policy - Do Low Interest Rates help the UK Economy? I A Level and IB Economics

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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