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Explaining the Bank of England's High Interest Rates
by Felix Salmon
Feb 07, 2008
Feb 07, 2008
In its front-page curtain-raiser for the Bank of England's rate cut today, the WSJ prints a chart with the headline "Banking Bubble?". It shows that the financial sector now accounts for more than a fifth of all jobs in the UK - compared to just 6% in the US.
So how is it that the UK, with an enormous financial sector and a rapidly-imploding housing market, has interest rates far above those in the US and the euro zone? After today's cut, the UK base rate is 5.25%, compared to 4% in Europe and 3% in the US. Inflation is a bit of a worry in all three areas, but I don't think that inflation on its own can account for the differential.
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