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Economics

Topic updates

Normalising interest rates

Geoff Riley

30th October 2017

This autumn, the Bank of England is expected to start raising policy interest rates from an ultra-low level of 0.25%.

As we approach the tenth anniversary of the UK economy last falling into recession (the second quarter of 2008), it remains a remarkable fact that policy interest rates in the UK and many other developed countries have historic lows at close to or below 0%. 

The Bank of England’s Monetary Policy Committee (MPC) lowered the base rate from 0.5% to 0.25% on 4 August 2016, the first change since March 2009, and the lowest since the Bank was founded in 1694.

Slowly and in small steps, we are likely to see the main monetary policy interest rate to edge higher as the process of normalisation starts. 

There is much uncertainty about the timing and scale of interest rate rises, not least with Brexit uncertainty a key feature going forward.

Here are some links to the lively debate among academic economists over whether now is the right time for the Bank of England to raise interest rates. 

Your starting point could well be this article from BBC news - Is now the time to raise interest rates?

This Guardian article is also excellent from an evaluation perspective - Twist or stick: two sides of the vital interest rate decision facing UK

Oxford economist Simon Wren-Lewis makes the case for keeping interest rates at their current low

Andrew Sentance argues that rates should be rising now

The Economist believes the next rate rise should be delayed

Former BBC Newnight economist Duncan Weldon fears weakening economic activity and confidence means that this is not the moment to raise interest rates.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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