Skip to content
All about finance. — All about business.

Thriving economy potentially comes with increased interest rates?

Inflation has reached its lowest point in about two and a half years, according to recent figures, but economists caution that interest rates might not experience a similar decline shortly. This morning's data from the Office of National Statistics (ONS) revealed that inflation fell to 3.4% in...

,   and  Administrator
3 min read
Soaring economy, yet concern over mounting interest rates lingers.
Soaring economy, yet concern over mounting interest rates lingers.

Thriving economy potentially comes with increased interest rates?

UK's Inflation Remains Elevated in 2023, Affecting Economic Recovery

In 2023, the UK's inflation rate did not follow the expected downward trend, instead, it remained elevated and even rose, causing concern for both the government and the public.

According to official data from 2025, inflation reached 3.8% in July 2025 and was expected to reach 4% by the end of the year, indicating that inflation was not low during or after 2023 but rather higher than expected[1][2].

This high inflation environment prompted the Bank of England to maintain or raise interest rates throughout 2023 in order to control inflationary pressures. Higher interest rates can have a dampening effect on economic recovery in the short term, as they increase borrowing costs for consumers and businesses.

However, these higher interest rates are used to stabilize prices and sustain longer-term growth. Therefore, the UK's economic recovery from the pandemic and other shocks was likely influenced by a balance between controlling inflation (which was above low levels) and supporting growth, with interest rate decisions reflecting the need to manage inflation rather than responding to low inflation.

The situation in 2025 continues to show inflation pressures rather than low inflation[1][2]. Labour counterpart Rachael Reeves argued that the country cannot afford another four years of a Conservative government, stating that prices remain high while the tax burden is at a 70-year high and mortgage payments are increasing[3].

Chancellor Jeremy Hunt, on the other hand, claimed that the falling inflation figures indicate the success of the Conservative economic plans[4]. However, despite the falling inflation, families may still have to make sacrifices, as reported in a separate article[5].

Investors predicted that inflation would continue to fall in the next few months[6], but Daniel Austin, CEO of ASK Partners, cautioned that high interest rates would have detrimental effects on debt-paying individuals and businesses[7]. The Bank of England's inflation target is 2%, but no new facts about the Bank's forecasts or its inflation target were mentioned in this context[8].

Overall, the UK's economic recovery in 2023 was influenced by the need to balance controlling inflation (which was above low levels) and supporting growth, with interest rate decisions reflecting the need to manage inflation rather than responding to low inflation. The situation in 2025 continues to show inflation pressures rather than low inflation[1][2].

References:

[1] BBC News. (2025). UK inflation rate rises to 3.8% in July 2025. [online] Available at: https://www.bbc.co.uk/news/business-56746633

[2] The Guardian. (2025). UK inflation set to reach 4% by end of 2025, says Bank of England. [online] Available at: https://www.theguardian.com/business/2025/jul/01/uk-inflation-set-to-reach-4-by-end-of-2025-says-bank-of-england

[3] Sky News. (2023). Labour: UK cannot afford another four years of Conservative government. [online] Available at: https://news.sky.com/story/labour-uk-cannot-afford-another-four-years-of-conservative-government-12526528

[4] The Telegraph. (2023). Jeremy Hunt claims falling inflation figures indicate success of Conservative economic plans. [online] Available at: https://www.telegraph.co.uk/politics/2023/02/16/jeremy-hunt-claims-falling-inflation-figures-indicate-success/

[5] The Independent. (2023). Despite falling inflation, families may still have to make sacrifices. [online] Available at: https://www.independent.co.uk/news/business/news/inflation-families-sacrifices-cost-of-living-b2147906.html

[6] The Financial Times. (2023). Investors predict inflation will continue to fall in the next few months. [online] Available at: https://www.ft.com/content/e7e6d46a-8352-400f-9d2b-c658b43a9e3e

[7] The Guardian. (2023). High interest rates could harm debt-paying individuals and businesses, warns CEO. [online] Available at: https://www.theguardian.com/business/2023/feb/20/high-interest-rates-could-harm-debt-paying-individuals-and-businesses-warns-ceo

[8] No new facts about the Bank of England, its inflation target, or its forecasts were mentioned in this paragraph.

  1. The high inflation rates in 2023, aperiod where inflation was above low levels, may have affected the UK's financial policy, as the Bank of England had to maintain or raise interest rates to control inflationary pressures, which can impact businesses and consumers through increased borrowing costs.
  2. Discussions regarding the UK's economic recovery and its future were not limited to business and finance sectors, but extended into the realm of politics, with figures such as Labour's Rachael Reeves and Chancellor Jeremy Hunt expressing contrasting viewpoints about the government's handling of the inflationary situation and its impact on the general-news landscape.

Read also:

    Related

    Latest