England (Commonwealth Union) – The UK witnessed some of the highest interest rates in 40 years of 10.1% with increasing food prices. This has left much of the public feeling less optimistic over the future of the economy and may have to choose between heating and eating. However, the Deputy Governor of Monetary Policy at the Bank of England, Dr Ben Broadbent, has posed the question to if UK interest rates need to go up as much as markets forecast.
In a speech delivered at the Imperial College Business School on Thursday 20 October Dr Broadbent said: “Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.” Dr Broadbent was demonstrating the inflationary repercussions of real shocks to the attendees that included staff, students and alumni at the Business School.
He argued the way the joint effect of the COVID-19 pandemic and the Russia – Ukraine war had imposed significant destruction on the UK’s national income. He set out to explain the association between these extraordinary impacts that was followed by increased rates of inflation and the Bank of England’s monetary policy reply.
Summarizing the effect of elevated inflation and the external “shocks” that the UK economy has gone through over the past two years, Dr Broadbent stated that the pandemic increased demand across the world for goods and lowered their supply and also stated that Russia has significantly reduced its supply of gas to Europe, which have had a dramatic impact on relative prices.
Dr Broadbent further stated that import rates had gone up significantly in contrast with the rate of UK output. This had “unavoidably depressed real incomes: the volume of output may have just about recovered to pre-Covid levels, but it’s consumption value has not.”
The occasion was organized by the Brevan Howard Centre for Financial Analysis at Imperial College Business School.
