Monday, October 27, 2014

Deluded Call For Increase In Interest rates

Ian McCafferty, who sits on the MPC, has called for the Bank of England to begin raising interest rates. He is of the view that Britain will run out of spare capacity by the middle of next year.

He is quoted by the Telegraph:
Starting to raise the Bank rate now makes it more likely that the increase required over coming years to deliver our inflation target can be kept gradual and limited.” 
Whilst this is all very well in theory, in the sterile world of an economist's textbook, the reality is somewhat different:

- There is no build up of inflationary pressure
- People are saddled with debts that they can ill afford
- Our economy is consumer driven, people with debts need to be encouraged to spend/borrow more
- There is a general election in May 2015, there is no way a rise in interest rates will occur before then!

All in all McCafferty's call for a rise in rates is deluded.

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