Friday, March 30, 2007

Interest rates set to rise

With an unexpected strong rise in consumer spending in February and January interest rates are likely to increase in the near future.

House prices also continue to rise also adding to inflationary pressure.

The MPC increase interest rates to reduce inflationary pressures in the economy. They seek to keep inflation within the governments target of 2% +/- 1. Inflation is currently 2.7% but rising consumer spending could increase the inflation rate.

The effects of rising interest rates in the economy are quite varied but mainly involve reducing the growth in consumer spending and hence reduce economic growth.

View: Effects of increasing interest rates in the economy

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