Study: London skewing UK interest rates

The Bank of England may be forced to pay greater attention to the UK economy outside of London when setting interest rates.

That’s the conclusion of a study by Deutsche Bank into whether the UK fulfils the criteria of an optimum currency area. It says the British capital skews the performance of the overall economy, potentially masking weaknesses, creating asset bubbles and distorting labour markets elsewhere.

“The implications are that monetary policy may need to display a regional bias to take account of asymmetrics,” said Oliver Harvey, a London-based macro strategist at Deutsche Bank. “We find that interest rates have historically been biased towards London, but believe that this may change.”