Inflation means we’re in for a tough year ahead – how will increasing interest rates help?

Interest rates will remain very low by historical standards and they will stay far below inflation driven in part by soaring energy and food prices, writes Hamish McRae

There is a genuine debate as to whether the central banks have been wise to push interest rates so low for so long (Getty)

This week will see an increase in interest rates in the US and UK. Or at least that is the widespread expectation of the financial markets.

Their argument is that central banks have no option but to increase rates in the face of soaring inflation, and that economic growth is solid enough to support that.

In the case of the US, last week saw consumer inflation reach 7.9 per cent, the highest for 40 years. The Federal Reserve has paved the way for the first increase in interest rates since 2018, with its chair Jerome Powell telling Congress that he is in favour of a 0.25 per cent increase. The Fed meets this week to decide.