UK's economy is experiencing slower growth as during 2007, it recorded a real GDP growth of 3.1% however, and the same has been recorded at 1.0% due to sharp increase in inflation. (Economist.com 2008). UK's inflation touched 3.8% in 2008 whereas its budget balance also widened to negative 3.8% suggesting the fact that all is not well for the UK economy.
Many critics believed that in order to arrest the rising inflationary trends in the country, the monetary authorities in the country shall increase interest rates whereas some believed that in order to reduce the impact of recession, UK's monetary authorities shall lower interest rates so that economy can be put on right track.
This paper will discuss both the options i.e. increasing or decreasing the interest rates to control inflation or avoid recession and will present a comprehensive analysis of both the options in order to provide a conclusive recommendation of which option to exercise.
The economy of UK is second largest economy in EU after Germany and fifth largest economy in the world. ...Show more