Overcast

Overcast

max temp: 12°C

min temp: 9°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

Jonathan Adnams, chairman of Southwold brewer Adnams, has brewed a special beer to celebrate his 60th birthday, with six bottles set to be auctioned off for  the Adnams Community Trust.

The chairman of Southwold brewers Adnams is set to auction off six bottles of a beer specially made for his 60th birthday.

The food industry has warned of possible price rises, if the sector and its workers from the EU are not treated as a priority in Brexit talks.

Food prices in the UK will rise if the Government does not treat the sector and its workers from the EU as a priority in Brexit negotiations, industry leaders have warned.

Britains trade gap narrowed to a better-than-expected £9.7bn in October after exports soared to a record monthly high

Britain’s trade gap narrowed to a better-than-expected £9.7bn in October after exports soared to a record monthly high.

DMO tourism event held at the University of Suffolk, Waterfront building
Photo L-R:
Peter Waters, Visit East AngliaVictoria Savory, Adnams and Suffolk Coastal DMO,
Tim Rowan-Robinson, formerly of Suffolk Coastal DMO, Malcolm Bell, Visit Cornwall,
Laura Locke, Suffolk Business School at the University of Suffolk,
Ian Russell- Visit the Broads and Visit Norwich, Charles Howard- Discover Newmarke.t

The tourism industry is already worth hundreds of millions of pounds to the local economy in Suffolk, and that figure is growing, year-on-year.

The AXA  offices in Civic Drive, Ipswich.

Insurance giant AXA, which employs around 1,500 people in Suffolk, is launching a world-wide policy on parental leave which will result in additional time off on full pay for new mothers and fathers within its UK workforce.

Management Jobs

Show Job Lists

Most read

Most commented

Topic pages

Streetlife

Newsletter Sign Up

Sign up to the following newsletters:

MyDate24 MyPhotos24