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Interest Rates and the UK economy

Published online by Cambridge University Press:  26 March 2020

Ray Barrell  and
Simon Kirby
Ray Barrell*
Affiliation:
National Institute of Economic and Social Research
Simon Kirby
Affiliation:
National Institute of Economic and Social Research
*
e-mail: r.barrell@niesr.ac.uk
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Extract

At the beginning of 2007 inflation was in excess of its upper threshold of 3 per cent and the Governor of the Bank of England had to write a letter to the Chancellor explaining why this had happened and what measures were to be taken to remedy this. It was our opinion that interest rates had been too low for eighteen months. It was also our opinion that the Bank had kept them too low because it anticipated wrongly that inflation would have accelerated if interest rates had been inappropriately set. In August 2005 the Bank of England cut interest rates by a quarter of a point, and held them at 4.5 per cent for around a year, before introducing five interest rate increases in the subsequent twelve months.

Type
Articles
Information
National Institute Economic Review , Volume 202 , October 2007 , pp. 61 - 64
Copyright
Copyright © 2007 National Institute of Economic and Social Research

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Footnotes

The results here were produced on the most recent version of the Institute model NiGEM, released at the end of October. The results are very similar to those on that released to users in early August 2007. All work on the model is supported by the user group of central banks, finance ministries, research institutes and others.

References

Bank of England (2005), Harrison, R., Nikolov, K., Quinn, M., Ramsay, G., Scott, A. and Thomas, R., The Bank of England Quarterly Model, available at http://www.bankofengland.co.uk/publications/news/2005/009.htm.Google Scholar
Barrell, R., Khoman, E. and Kirby, S. (1007), ‘Evaluating forecast uncertainty’, National Institute Economic Review, 201, pp. 55–60.10.1177/0027950107083049CrossRefGoogle Scholar
Wallis, K.F. (2004), ‘Comparing empirical models of the euro economy’, Economic Modelling, Elsevier, 21(5), September, pp. 735–58.Google Scholar