Since February 2021, annual average prices in the UK (as measured by the consumer price index — CPI) have increased steadily with a maximum growth of 11.1% in November 2022. This had only marginally decreased to 8.7% by June 2023. It is generally acknowledged that a high and sustained inflation is costly for an economy and, in order to fight these inflationary pressures, the Bank of England has steadily increased the bank rate that, by June 2023, stood at 5%. Figure 1 shows the monthly evolution of the bank rate since January 2020.
The change in the bank rate is part of the monetary policy tool kit that the central bank uses in order to influence the real economy. In particular, increases in the bank rate are aimed at reducing aggregate
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