Economics in the Real World
In the article by Jenny Anderson published in the New York Times Bank of England Holds Rates Steady, the problem of addressing the interest rate increase by the Central Bank of England is investigated. According to the article, the Bank made a statement that the interest rates would be retained at the level of 0.5%, which was unchanged since the first quarter, 2009 (Anderson 1). The Bank claimed that they would pursue this policy despite the speculations and the changing political regimes that could negatively affect interest rate. The leader of the Conservative Party, David Cameron, had used fiscal tightening as one of the key tools of his campaign. Therefore, it was supposed that the victory of the party at the elections would mean that the bank would delay any instances of raising interest rates (Anderson 1).
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The article also reported the government attempted to reduce its domestic economy spending, which the central bank had suggested as a levy to reducing the interest rates. Anderson stated that the move that the bank was going to take was an attempt to encourage borrowing from the public, so that the economy would remain in stable condition and able to sustain the expected growth rates.
Approximate estimates showed that the growth rate of the British economy could be at 2.3% in 2016 and slow down to 2.6% in 2015 (Anderson 1). Allan Monks of the JPMorgan team attributed it to the impact of the expenditure reductions imposed by the government.
The article stated that the economy performance had slowed down compared to the previous year. This was attributed to the negative effect of level of exchange rates in the European Union, where England is a member. Therefore, the Prime Minister made an ambiguous hint that he was going to propose holding a referendum that would pull England out of the EU (Anderson 1). Workers’ wages were also on the rise, which meant that the economy of the country was facing a considerable level of uncertainty. the fuel prices are another pressure to the economy of the country and on its exchange rates, which usually affects the EU nations as well (Anderson 1). The performance of the oil prices in the region require the central bank to raise interest rates, which is why the Prime Minister was of the opinion that the country withdraws from the trading block. Experts could not predict when the oil producers would hike the prices and to what levels they would hold on to, that is one of examples how the prices make pressure on the economy of the UK.
However, according to the article, despite the uncertainties about the economy performance, the committee of the Monetary Policy of the bank voted that the country should not heed to the pressure. Such statement means that the economic advisors of the nation had opted to stay steady with the exchange rates. There are, therefore, a number of factors that the bank needs to address, one of them are inflation rates. In such respect, the inflation rates of the country were zero percent over previous two months, which was attributed to the decrease in the prices of fuel and food. In this case, people expected the Central Bank to attain a target of 2% inflation rate decrease that would result in the investigation of the bank performance (Anderson 1). There was also a report that the wage rate of the country has remained stagnant for some period, which had been the aftermath of the financial crisis of 2008.
To sum up, the article addressed a number of the theoretical aspects of the textbook such as the exchange rates, inflation rates, the financial crisis, and wage rates (Krugman and Robin 45). More precisely, the article reported on the issues that are a single unit of interrelated aspects as well as their impact on the economy of any nation. For this case, increase of inflation rates caused a series of other problems connected to them. The case presented the exchange rates as factor that impacts inflation and wage rates in the country.
The economic pressure on the UK results from the reduced exchange rates against the EU as well as the reduction in the levels of government expenditures. The Central Bank had to institute lowering borrowing rates that would meet the expected performance of the economy. Such a move is a monetary policy that the Bank adopted to ensure that the public was open and encouraged to borrow. The article also depicted that inflation and wage rates relate to each other in certain proportion. Inflation rates of the country have remained zero percent, which has resulted in the wage rates stagnation. However, there is an expectation that the wage rate will rise if inflation rates increase. The article also revealed that the central bank of any nation is responsible for regulating the economy performance as well as all its elements, which conforms to the textbook ideologies.
Anderson, Jenny. Bank of England Holds Rates Steady. The New York Times. 2015. Web.
Krugman, Paul R, and Robin Wells. Economics. New York, NY: Worth Publishers, 2013. Print.