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A loopy world

There are two ways in which this would actually benefit the UK: lower oil prices will raise real incomes; and fears about the health of the world economy might cause the Bank of England to delay raising interest rates. We can quantify these negative feedback effects. The UK consumes around 1.5m barrels of oil a day, which implies that the $15 per barrel fall in its price we’ve seen since June would add 0.3 per cent to GDP. And Bank of England research suggests that if Bank rate is a quarter point lower than expected, GDP should be around 0.15 per cent higher than expected.

Offsetting these small but significant negative feedback effects are some positive feedback effects that could add to instability.

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