Press Release Summary: The BoE has informed a slash in interest rate. It is now more concerned about keeping inflation under control.
Press Release Body: London (Ask4loan) February 28, 2008: The UK economy is slowing but price pressures are on the rise. This situation alerts the policymakers to remain aware of the double risks. The interest rate prevailing in the financial market is showing a sign of reduction. Bank of England officials informed that interest rates will come down gradually.
The dilemma of inverse relationship between the reduction in retail sale and increasing price has put BoE in a mess. Price structure has increased at its fastest rate in last 12 years. Decreased sales have not cut down the price due to the easy availability of credit cards and unsecured loans. As borrowing is now restricted to homeowners only, there is a chance of development in the perplexed situation.
In last three years the Business investment has fallen to its sharpest rate due to the credit crunch. Companies have hunkered down for a slowdown in the property market.
The rising food and energy prices signify that people expect prices to keep rising at a rate above the central bank\'s 2 percent target. There is also an anticipation of a sharp reduction in interest rate. However, the reduction needs to balance two significant risks- the first one is the financial stress that will precipitate an unduly sharp slowdown in demand. The second one is the fear of high inflation. If interest rates are cut down drastically, there is every chance of a vertical inflation. Compared to the slash in the interest rate, a period of weaker consumer spending and stagnation of house prices are more necessary to re-balance the economy.
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