UK interest rates: shades of 1988

Article Abstract:

UK consumer spending is rising rapidly in 1996 and has reached levels not seen since 1988. The chancellor argues that economic growth can rise without inflationary risks, but interest rates may have to be raised prior to an election, according to Goldman Sachs. Financial markets may reacts badly if the chancellor is perceived as rejecting advice from the Bank of England for political reasons and a pre-emptive rate rise could help prevent this. Rates could be raised slightly then lowered again prior to an election in 1997.

Interest Rates

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A Taylor-made rule for interest rate mistakes

Article Abstract:

The Taylor rule is advocated by John Taylor from Stanford University as a guide to setting interest rates. He argues that rates should be reduced if output drops below potential and raised if output rises above potential, and rates should be reduced or raised according to whether inflation is below or above target levels. UK policy has tended to follow this rule, but UK monetary policy has created problems according to most observers. The Taylor rule applied to existing situations rather than trends likely to develop.

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