Professors David Spencer and Muhammad Ali Nasir author article on UK interest rates

On 4 August, Professors David Spencer and Muhammad Ali Nasir published an article in The Conversation on the recent rise in interest rates in the UK.

Dr Spencer and Dr Nasir discuss the economic reality of the 5.25% rise, noting that it is likely to impact households and their spending abilities, as well as employment rates. They highlight that the rise is part of an approach by the Bank of England to combat inflation by inducing a recession and creating unemployment. However, Dr Spencer and Dr Nasir refute the idea that “there is a necessary trade-off between inflation and unemployment”.

Furthermore, Dr Spencer and Dr Nasir contend with the moral implications of this approach, noting that the Bank of England should have “a responsibility to protect living standards” and that achieving a lower inflation rate should not come “at any cost”.

With the Bank of England’s own forecasts predicting that inflation is set to come down, Dr Spencer and Dr Nasir describe the approach as “short-sighted and probably counterproductive”.

Furthermore, noting that countries such as Spain have used other approaches to curb inflation that have not harmed employment rates, Dr Spencer and Dr Nasir conclude:

In short, the BoE is simply compounding problems rather than solving them through its actions. It is time it learnt the limits of its own policies, while the government needs to play a role too.

Read the full article.