Thursday, June 05, 2014

Interest rates

European Central Bank cuts its main interest rate to 0.15% and its overnight deposit rate to -0.1%.

So all the talk about the Bank of England possibly raising interest rates must be garbage.

As they never stop telling us, we are in a globalised world with the EU as our biggest market.

So consider two manufacturers, one in the United Kingdom, the other in the France.  Both have identical costs except for the interest they pay on borrowing.  If the United Kingdom has to pay higher interest it will have to charge higher prices and therefore will lose market share to the French company.  Therefore United Kingdom interest rates will have to follow Eurozone interest rates.

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