Partly Cloudy

Partly Cloudy

max temp: 23°C

min temp: 18°C

ESTD 1874 Search

Economy: Bank of England leaves interest rates on hold again

12:09 09 January 2014

The Bank of England in London.

The Bank of England in London.

Interest rates remained on hold once more today, marking nearly five years of the cost of borrowing being kept at the record low of 0.5%.

The Bank of England pledged last year not to consider a rise until the unemployment rate falls to 7% as part of efforts to support the UK’s recovery.

Rates have stayed at the rock bottom level of 0.5% since March 2009, while the bank has also pumped £375billion into the economy under its quantitative easing programme to spur on growth.

But the strength of the economic revival in recent months has led to widespread speculation that the bank will have to tweak its forward guidance to stave off a rate hike.

Economists predict that bank governor Mark Carney will lower the unemployment target for considering an increase in the cost of borrowing as early as next month.

When he announced the new forward guidance policy on rates, the bank predicted that unemployment would not fall to 7% until 2016.

But unemployment has been falling faster than expected, down to 7.4% in October, as the recovery gains traction, meaning the threshold could be hit far sooner.

Alan Clarke, of Scotiabank, said unemployment was “falling like a stone”. He added: “We think that 7% will be hit in the early months of 2014. As a result, the bank is likely to modify its forward guidance policy, lowering the threshold to 6.5%, most likely at the February inflation report.”

Brian Hilliard, at Societe Generale, said the threshold could “easily” be reduced below 6.5%.

Despite the bank’s assurances that rates will stay low for some time, the recent pace of recovery has fuelled fears that borrowing costs will have to rise soon.

Economists are forecasting that fourth-quarter 2013 gross domestic product growth at least matched the 0.8% recorded in the previous three months.

Closely-watched survey figures from the services, manufacturing and construction sectors have confirmed that despite a dip in activity last month, the economy enjoyed a strong end to 2014.

But the economy still has some way to go before recovering to pre-financial crisis levels.

Mr Hilliard said the bank’s Monetary Policy Committee (MPC) is not “anywhere near ready to raise rates, given the general state of the economy” and believes rates will remain on hold until the third quarter of 2015.

The recent strength of the pound is also thought likely to increase chances that rates will remain on hold, as it could weigh down on exports by making products more expensive for overseas buyers and damage efforts to rebalance the economy.

Howard Archer, chief economist at IHS Global Insight, said: “Any near-term raising of interest rates could cause sterling to strengthen even more, with damaging repercussions for export prospects.

“Sterling’s strength should help to contain consumer price inflation over the coming months and give inflation a good chance of staying close to its 2% target level for an extended period after dipping to a four-year low of 2.1% in November.”

Search hundreds of local jobs at Jobs24

0 comments

Rob Legge, chief executive of Servest.

Facilities management group Service is to create up to 50 new jobs with the opening of a new customer contact centre at its headquarters near Bury St Edmunds.

Neil Farrow, organiser of the Ipswich Gin Festival

Ipswich is set to get its own gin festival next year, with dozens of food and drink companies set to get on board.

Ethan Miller is the winner of a furniture  design competition, where his design has been made into a prototype by West Suffolk College.
Ethan Miller reiving his prize from Paul Glasswell.

Students design wins Glasswells furniture design competition

The owner of Frankie & Benny's is to review its offer in a bid to win back trade lost following price rises.

The struggling owner of restaurant chains Frankie & Benny’s and Garfunkel’s is to close 33 under-performing sites after posting a loss for the first of the year.

And indicative perspective of what a new retirement homes on the 30 Lower Brook Street site, might look like.
Development plans are going out for consultation.
The site is currently Archant's newspaper offices.

A public exhibition will give local residents Ipswich residents the opportunity to view and comment on McCarthy and Stone’s preliminary proposals to redevelop land between Lower Brook Street and Turret Lane.

HOT JOBS

Show Job Lists

Most read

Most commented

Topic pages

Streetlife

Newsletter Sign Up

Sign up to the following newsletters:

MyDate24 MyPhotos24