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Base rate increase necessary, says Ernst & Young

The increase in the base rate was needed to bring inflation in line with the Bank of England’s 2% target, says Ernst & Young.

The accountancy firm says the change was also necessary to temper the expansion in economy.

A spokesman adds: There has been a healthy debate within the Monetary Policy Committee and elsewhere about the effect of immigration and participation in tempering inflation.

“Increases in demand and supply boost output, with uncertain effects on prices, and there is a valid argument for waiting to see how this situation pans out before raising rates again.

These arguments may now hold the line at 5%.

“But the Committee will move interest rates up again without hesitation if there are more consistent signs of inflationary expectations or cost of living pressures impacting wage settlements.”

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