Interest rate could rise again quickly

The chief economist at the Bank of England has warned that whilst the base interest rate in the UK has plummeted to its lowest level in history over recent months, following a series of six interest rate cuts in as many months, there is a good chance that it could rocket back up again in the future if policymakers decide that the rate needs to go up in order to keep inflation in check.

Spencer Dale, a member of the powerful Monetary Policy Committee, said that the central bank will have to focus on keeping inflation at the government’s 2% target.

Dale said that the rates could be put up again with vigour if policymakers saw the need to do this. He stated: ‘The committee adjusted monetary policy boldly and decisively on the way down in order to meet the inflation target. And, let me assure you that, when the time comes, we will be prepared to respond with equal vigour on the way back up.’ This came after shock results recently that showed an increase in the Consumer Price Index (CPI).

Dale also warned that there was no sign of easing in the economic slump that was the worst in nearly thirty years. However, he did make encouraging comments with regards to the possibility of economic improvement in 2010, stating: ‘As we go through 2009, I believe it is most likely that the pace at which output is contracting will ease and that we will see some signs of recovery by around the turn of this year.’

He added that the quantative easing programme that the government had put into place over recent weeks was also showing encouraging signs, and that the measures being taken would eventually reduce borrowing costs for businesses and households as well as increasing access to lending from financial institutions.

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