Press release: BoE cuts interest rate: Reaction from CPS head of economic research Daniel Mahoney

Daniel Mahoney responds to the Bank of England’s announcement:

“The Bank’s further loosening of monetary policy could prove problematic for the UK economy. The falling pound means that inflationary pressures are already building up, and today’s decision will exacerbate them.

Costs of servicing the government’s debts have recently fallen to record lows, with five year bonds being sold at just 0.38%. However, it would make little sense for investors to hold onto 0.38% yielding debt in a 3% inflation environment, which may now be reality in the near future. Investor flight, large increases in the cost of government borrowing along with major losses for pension funds are very real possibilities. This is in addition to the longer term problems of asset price inflation and increasing consumer debt.

These are risks that will need to be carefully monitored over the coming months and years.”

Read more: Apocalypse Soon? The danger of Further Loosening Monetary Policy

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Date Added: Thursday 4th August 2016