Britons have been warned to expect some ‘tough times’ ahead as inflation is expected to hit 11% this autumn. Meanwhile, interest rates have hiked to a 13-year high of 1.25%, which will push up the cost of getting a mortgage.
Global factors including the Covid-19 pandemic and the Ukraine war are sending inflation sky high
Raising interest rates is supposed to cool down the rate of inflation, as it reduces demand, discourages borrowing and spending, and encourages saving. ‘It is inevitably the case that, when you are squeezing inflation out of the system, you will rely on the Bank of England and the Government having the fiscal and the monetary policies which will inevitably mean we cannot do all the things that we would, in ideal circumstances, like to do,’ he said.
While the raising of interest rates is seen as a standard tool for controlling inflation, the situation this time round is a bit more complicated. But Bank of England governor Andrew Bailey points out in his letter to the Chancellor: ‘Not all of the excess inflation can be attributed to global events.’
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