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BoE: No rush for rate rise

Sam Cordon

November 13, 2013

In August Bank of England governor Mark Carney committed to keeping interest rate at 0.5% until unemployment dropped to 7.0%, which it predicted could take as long as three years.

But figures released today by the Office for National Statistics revealed that the unemployment rate now stands at 7.6%, the lowest rate in more than three years.

The Bank of England now forecasts the unemployment rate will hit the 7% threshold in the second half of 2015, compared to previous guidance which assumed the threshold would not be met before the middle of 2016.

In the Bank of England’s latest quarterly inflation forecast Carney said the UK economy seemed to be recovering faster than expected.

Speaking at a press conference earlier today Carney said: “For the first time in a long time you don’t have to be an optimist to see the glass is half full. The recovery has finally taken hold.

“The MPC’s intention is to maintain the exceptionally stimulative stance of monetary policy until there has been a substantial reduction in the degree of economic slack.”

Commentators believe a rise may come sooner than anticipated but do not see it happening next year.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said that rise could come as early as next year.

He said: “Better-than-expected unemployment and growth figures have forced the Bank of England into an early review of its forecasts.

“There is now growing panic that interest rates might actually rise next year, rather than 2016 as the governor’s Forward Guidance previously indicated.

“But with inflation falling close to its 2% target and the economy still in recovery mode, it is unlikely that the Bank will risk hiking interest rates too soon.

“Even if targets are met, there will still be good reasons to keep interest rates at 0.5%. We still believe the first rate rise may not be until 2016.”

Azad Zangana, European economist at Schroders, agreed that the rate will most likely rise in 2016 but revised his earlier prediction of when the increase will come.

He said: “Given the update in views and analysis from the November inflation report, the Bank of England appears to be turning more hawkish, although it also continues its non-committal stance to its 7% unemployment rate threshold.

“On balance, this leads us to bring forward our forecast for the first interest rate rise from the end of 2016, to the start of 2016, but we are not confident enough in the sustainability of the recovery to forecast tightening monetary policy in 2015, especially due to the poor productivity growth seen.”


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