BoE updates estimate of equilibrium interest rates

Interest rates on paper

Long-term real interest rates in the UK have fallen two percentage points to around 0–1%, according to the Bank of England’s latest assessment.

In its Inflation Report published on August 2, the BoE distinguishes between the equilibrium interest rate (r*), a mix of shorter run factors such as Brexit uncertainty that might be holding equilibrium rates below their long-run trend (s*), and long-run trend itself (R*), which is affected by slower moving, structural factors. As such, r* = R* + s*.

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