UK Government's Strategy to Combat Inflation through Interest Rate Hikes

BM461 Global
Business
Environment

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Inflation refers to the periodic increase in the price value of the goods and services in an
economy which leads to erosion of purchasing power of the citizens of a given country. This
report will highlight the ways in which the UK government is undertaking activities to combat
the inflation rate with focus on interest rate manipulation (Cornea‐Madeira and Madeira, 2022).
MAIN BODY
According to the economic school of thought and major prevalent economic theories,
interest rates are one of the best ways to counter inflation in an economy as the rate of interest
which is prevalent in a country directly impacts the purchasing and lending power dynamics.
When inflation rate is rising at an alarming rate or is on a gradual rise than the federal reserve
raises the interest rates to slow down the economy considerably resulting in the inflation rate
going through a downward trend (Boyce, and et.al., 2018). This relationship between inflation
and interest rates is also quite paradoxical as inflation is often associated with the rising standard
of living and economic growth however in economy’s such as UK where the inflation rate has
been devastating in the light of the COVID-19 pandemic and Brexit and has increased faster than
the rise in wages, the government has implemented several control and combative measures to
counter inflation with interest rates being a focal point of their joint efforts toward lowering
inflation.
1