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Bank of England Likely to Cut Base Interest Rate in July 2008 Meeting July 2, 2008

In the recent open letter from Mervyn King, the Governer of the Bank of England, to the chancellor Alistair Darling, Mr King had to explain the rapid rise in inflation to 3.3%. The letter broadly blames shocks to the economy from escalating petrol, diesel, gas and electric prices. When any of the energy bills rise by a large amount, this cost is passed on through every stage of the economy and we get high inflation.

Mr King gives the view that increasing rates will not help the current situation and puts forward a case for cutting rates or at least leaving them stable for another few months to allow inflationary shocks to work their way naturally out of the statistical range. It is the Bank of England’s view that the inflationary pressures are short term and the problems will only last between 9 and 15 months before the CPI rate returns to an acceptable level.

Given the facts put forward in the letter I expect the Bank not to raise the base rate and I believe we will see a rate cut in either July or August to combat spiralling costs.

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[...] Finance and investment articles wrote an interesting post today onHere’s a quick excerpt In the recent open letter from Mervyn King, the Governer of the Bank of England, to the chancellor Alistair Darling, Mr King had to explain the rapid rise in inflation to 3.3%. The letter broadly blames shocks to the economy from escalating petrol, diesel, gas and electric prices. When any of the energy bills rise by a large amount, this cost is passed on through every stage of the economy and we get high inflation. Mr King gives the view that increasing rates will not help the current situati [...]

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