Will the cost of living crisis ever end? The Bank of England has raised interest rates to stop inflation from going any higher. Some think it is a sign that the UK's economy has a bleak future ahead.
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Recession 'inevitable' after inflation shock
Will the cost of living crisis ever end? The Bank of England has raised interest rates to stop inflation from going any higher. Some think it is a sign that the UK's economy has a bleak future ahead.
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What's happening?
The Bank of EnglandThe central bank of the UK. Like other central banks around the world, it tries to stabilise the economy by keeping down inflation and offering loans to struggling banks. meets eight times a year to decide whether they should change interest ratesThe interest rate tells you how high the cost of borrowing is, or how high the reward for saving is. If it is more expensive for businesses and consumers to borrow, they will spend less and inflation will fall. . When they met yesterday, they decided to raise them to 5%. This is higher than anyone expected.
Raising interest rates is supposed to help with slowing inflationAn increase in the price of goods in an economy. . But some think it may cause a recessionA period of economic decline. A recession occurs when a country's Gross Domestic Product falls for six months in a row. instead.
In May, the inflation rate in the UK was 8.7%. British experts were hoping that inflation would fall, but instead it is remaining very high.
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So the Bank of England decided to raise interest rates. When interest rates are high, people are less likely to spend money, so inflation should go down.
But raising interest rates can also cause a recession, which is when the economy experiences two consecutiveOne after the other. quarters of negative growth. Recessions can lower living standards and make life harder for the general public.
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Will the cost of living crisis ever end?
Yes! This policy will help to push inflation down, which means people's money will not keep losing its value so quickly. In fact, this is the best decision to ensure that the cost of living does not keep growing.
No! The fact that interest rates are being raised dramatically shows that we have no way of controlling this inflation.
Keywords
Bank of England - The central bank of the UK. Like other central banks around the world, it tries to stabilise the economy by keeping down inflation and offering loans to struggling banks.
Interest rates - The interest rate tells you how high the cost of borrowing is, or how high the reward for saving is. If it is more expensive for businesses and consumers to borrow, they will spend less and inflation will fall.
Inflation - An increase in the price of goods in an economy.
Recession - A period of economic decline. A recession occurs when a country's Gross Domestic Product falls for six months in a row.
Consecutive - One after the other.
Recession ‘inevitable’ after inflation shock
Coin-cidence? Inflation stayed at 8.7% in April and May, down from a peak of 11.1% last year. Glossary
Bank of England - The central bank of the UK. Like other central banks around the world, it tries to stabilise the economy by keeping down inflation and offering loans to struggling banks.
Interest rates - The interest rate tells you how high the cost of borrowing is, or how high the reward for saving is. If it is more expensive for businesses and consumers to borrow, they will spend less and inflation will fall.
Inflation - An increase in the price of goods in an economy.
Recession - A period of economic decline. A recession occurs when a country’s Gross Domestic Product falls for six months in a row.
Consecutive - One after the other.