According to the Finance and Leasing Association, consumer car finance ballooned by 9.2% in the last year. However, this growth has regional disparities; urban areas like Birmingham saw a 24% surge in PCP (Personal Contract Purchase) contracts, whereas more rural areas saw flat or falling volumes. The total volume of car finance agreements reached its highest point since 2017. Analysts warn that high levels of unsecured consumer debt pose systematic risks to the economy. Increased consumer confidence combined with competitive dealer-backed finance promotions has fueled this expansion. If consumer credit and car sales continue to expand at current rates, the Monetary Policy Committee of the Bank of England will have to consider increasing interest rates.
Extract C states that: 'If consumer credit and car sales continue to expand at current rates, the Monetary Policy Committee of the Bank of England will have to consider increasing interest rates.'
Explain the likely consequences of an increase in interest rates on the output of the automotive sector of the UK economy.
176 exam-style questions on AQA A Level Economics 2.4 Financial markets and monetary policy (A-level only), covering 2.4.1 The structure of financial markets and financial assets, 2.4.2 Commercial banks and investment banks, 2.4.3 Central banks and monetary policy, and 2.4.4 The regulation of the financial system. Each one has a worked solution and a mark scheme showing where the marks go.