Explain the effect on the Pound if the MPC decides to increase the base rate of interest.

The base rate of interest is the interest rate set by the Bank of Englands monetary policy committee (MPC) in order to stimulate the economy in the way the government sets out . The base rate of interest being increased leads to the demand in the pound to increase. The demand increases because hot money flows into the uk from forex trading are increased by the greater interest rates leading to a greater possible return on the money. As demand goes up and supply cannot be altered the price goes up of the pound relative to to its other currency such as the US dollar.