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UK Interest Rates – Bank of England to Cut Rates in July 2008 Meeting June 18, 2008

Earlier this month the official figures were released showing the UK CPI inflation rate had risen to 3.3%. The remit of the Monetary Policy Commitee is to maintain CPI interest within 1 percentage point of 2%. If the upper limit of 3% is reached, the Governer of the Bank of England Mervyn King must write a letter to the chancellor to explain why. This open letter was published on the B.o.E website along with the reply from the Chancellor Alistair Darling.

There has been some speculation that the Monetary Policy Committee would do all it could to maintain the rate at less than the 3% threshold but there is no evidence of this within the letter. In fact, Mervyn King gives a good account of the state of the UK economy and explains that the increase in inflation is unforseen and unavoidable, a direct result of the increasing price of fuel, food, gas and electric. As such, he believes that the Bank must act to stabilise the increase in inflation whilst safeguarding against any possible slow down in the economy. There is even a clear indication that interest rate cuts may be necessary, even though this is the opposite course of action usually taken to reduce inflationary pressure.

In one section the Governer states:

“We have seen in the past how the need to reduce inflation from persistently high levels has prolonged periods of subdued economic growth. ”

This is a clear indication to the Chancellor to rate cuts instead of increases and is hinted at again in the letter.

“I expect, therefore, that this will be the first of a sequence of open letters over the next year or so.”

Meryvn King looks to be taking a very sensible long term view on for the UK economy and hinting at rate cuts in order to stabilise inflation over the course of twelve to fifteen months.

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[...] The Broadsheet Rag â?? Politics & Nonsense wrote an interesting post today onHere’s a quick excerpt Earlier this month the official figures were released showing the UK CPI inflation rate had risen to 3.3%. The remit of the Monetary Policy Commitee is to maintain CPI interest within 1 percentage point of 2%. If the upper limit of 3% is reached, the Governer of the Bank of England Mervyn King must write a letter to the chancellor to explain why. This open letter was published on the B.o.E website along with the reply from the Chancellor Alistair Darling. There has been some speculation that t [...]

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