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BSA 2015: Lloyds anticipates 2015 rate rise

Sarah Davidson

May 21, 2015

Trevor Williams, the bank’s chief economist, commercial banking, said the Monetary Policy Committee may hike rates before next year to ensure the deficit doesn’t widen further from where it currently stands at 5.5% of gross domestic product.

WIlliams said: “Lower interest rates are expected to persist through the rest of the year, though Lloyds Bank’s view is they may go up by the end of the year on the basis that the deflation that we’re seeing at the moment ends, oil prices are higher, and the MPC reacts preemptively to tighten policy so they don’t have to tighten it more later on.”

He raised concerns about productivity after Office for National Statistics data showed that output per worker fell by 0.2% in the final quarter of 2014 while the latest Bank of England growth forecasts for UK economic growth stood at 2.5%.

He said: “In the end living standards depend on productivity.

“A low wage economy is a low productivity economy, a high productivity economy is a high wage economy. Most jobs created are at a lower wage, so they are lower productivity.

“Employment has grown faster than output and therefore productivity has not risen, it’s as simple as that. You can’t continue like this. You cannot maintain 2.5% growth rate with no growth in productivity. It is impossible.”

Williams warned: “You can only do it with ever increasing levels of debt so productivity has to go up or growth will have to fall, or the deficit will get so big that it becomes unsustainable and then growth falls because we have a crisis – something will give.”


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