Permanent drop in UK risk-free rate suggests lower interest rates the 'new normal'
The sharp fall in the risk-free rate – the rate of real return on safe assets – in the UK has been driven by a change in the perception of risk since the financial crisis, David Miles, a member of the Bank of England's (BoE) monetary policy committee, argued in a speech yesterday, adding that it would likely persist.
Combining the long-run historical average real return on safe assets (3%) with the inflation target (2%) indicates an equilibrium rate of 5% – which, Miles added, has been the
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