UK interest rate rise ‘increasingly likely’ with high energy prices; inflation fears hit bonds – as it happened (opens in a new tab)
News in brief
BoE deputy governor cites risks from energy prices, as US 30-year bond yields hits highest since 2004
Shortened publisher preview · The Guardian
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Edexcel IAL Unit 2 · Macroeconomic performance and policy (WEC12) · Edexcel IAL Unit 4 · Developments in the global economy (WEC14)
- Monetary policy
- Central-bank action on interest rates and the money supply to influence demand, inflation and economic activity.
- Inflation
- A sustained increase in the general price level, reducing the purchasing power of money.
Your syllabus connections
Suggested from the headline and preview. Use these prompts to investigate the full report; they are not findings about it.
Macro: Monetary PolicyYEC11 · 2.3.6.4; 4.3.5.4
Explain the mechanism
An interest-rate change can alter borrowing costs and saving incentives, affecting consumption and investment. Trace those spending changes through aggregate demand before discussing output and prices.
Evidence to collect
Record the rate decision, its date and the inflation measure cited. Separate the central bank’s forecast from outcomes already observed.
Evaluate
Fixed-rate borrowing, confidence and time lags can weaken transmission. A supply-driven price shock may respond differently from excess demand.
Practice question
Construct a chain from a rate rise to household spending. Under what conditions would inflation fall with only a small reduction in output?
Open the course guide →Macro: InflationYEC11 · 2.3.1.2
Explain the mechanism
Distinguish a rise in demand from a rise in production costs. Both can raise prices, but they imply different output effects and policy choices.
Evidence to collect
Check whether the statistic is a price level or an annual rate of change. Identify the period, index and largest contributing categories.
Evaluate
A falling inflation rate usually means prices are rising more slowly, not falling. Different households face different effective cost increases.
Practice question
Sketch the appropriate AD/AS shift and explain why one headline inflation figure may conceal different household experiences.
Open the course guide →Exam application
Use this story as a possible example when evaluating monetary policy. Identify the decision, explain its mechanism and assess who gains or loses before reaching a conditional judgement.
Analysis and evaluation
Interest rates change the cost of borrowing. Higher rates can reduce spending and inflation, but may slow growth and employment.
Challenge the argument: How might households and businesses respond differently to a change in interest rates?
Suggested learning material, not examiner-approved guidance. Verify figures, dates, attribution and counterarguments in the original report before citing.