Partly Cloudy

Partly Cloudy

max temp: 24°C

min temp: 15°C

ESTD 1874 Search

Economy: New Bank of England guidance underlines potential for interest rates to stay on hold

12:00 12 February 2014

Bank of England governor Mark Carney.

Bank of England governor Mark Carney.

The Bank of England said today that interest rates will remain on hold until the economy recovers further under new guidance designed to reassure households and businesses over the cost of borrowing.

shares

In an additional “forward guidance” policy unveiled by the bank, it stressed that there remains “scope” to keep rates at the record low of 0.5%, adding that even when economic output returns to normal any future rises will be gradual and rates will be significantly below the 5% average seen before the financial crisis.

The bank’s quarterly inflation report signalled that markets expect rates to start to rise to 0.75% at the start of the second quarter next year, with inflation remaining at around the 2% target if borrowing costs rise as expected.

Bank governor Mark Carney insisted that forward guidance was working and said the next phase of the policy will reassure further over the path of rates.

He said: “If and when the time comes that the economy can sustain higher interest rates, Bank rate is expected to rise only gradually. For a sustained and balanced recovery, the degree of stimulus will need to remain exceptional for some time.”

Today’s quarterly report gave further good news on the economy as the bank revised up its forecast for output in 2014 to 3.4% from its previous estimate of 2.8%.

The bank said it expected growth figures for the fourth quarter of 2013 to be revised up from 0.7% to around 0.9%. It added that the recovery will remain robust in the current quarter, forecasting growth of around 0.8%.

Mr Carney said: “The recovery has gained momentum. Output is growing at the fastest rate since 2007, jobs are being created at the quickest pace since records began, and after four years above target the inflation rate is back at 2%.”

But the bank said there was spare capacity in the economy of around 1% to 1.5% of GDP, which means there is no rush for rates to rise.

The bank’s new pledge comes six months after it launched its first guidance policy assuring that rates would not rise until the rate of unemployment hits 7%.

Faster than expected falls in joblessness has meant the rate has already fallen to within a whisker of the target, at 7.1%, and the bank said today it believes official figures will show the threshold was reached in January.

Its new guidance, designed to provide further clarity once the current threshold has been hit, has ditched linking rates to specific targets, instead using a number of broad-based terms.

Mr Carney said: “The first phase of guidance gave businesses confidence that Bank Rate would not be raised at least until jobs, incomes and spending were growing at sustainable rates.

“As guidance evolves, that remains the case: the MPC (Monetary Policy Committee) will not take risks with the recovery.”

shares

0 comments

Millions have been paid to passengers since 2012

There was a £900,000 increase in the amount paid to delayed passengers in just one year – from £1.4m in 2013/14 to £2.3m in 2014/15.

The new branding for Tarmac following its acquisition by CRH.

Iconic contruction brands Tarmac and Blue Circle have been combined to create a UK leader in the building materials sector.

Anne Holt of Baker Tilly.

East Anglia’s many ports and logistics businesses are being advised to prepare for new European Union customs duty arrangements which come into force next year.

Alan Cowie, communications and events officer at the| New Anglia Growth Hub.

New Anglia Growth Hub is to host a funding workshop, bringing together five providers of business support under one roof.

The Birketts Tour de Wellbeing cycle team, from left, Matthew Potter, Ben Burt, Jolyon Berry (front) Greg Jones and Tom Shape.

Members of the employment team at regional law firm Birketts raised more than £1,000 for Breast Cancer Care by taking part in the Tour de Wellbeing virtual cycle race, held by EMCOR UK to coincide with the Tour de France.

A plane in Flybe's latest purple livery.

Regional airline Flybe has confirmed its 2015-16 winter schedule to and from Stansted.

The head office of BT, the BT Centre, in Newgate Street, central London.

Thousands of BT workers are to share in a £265million payout under share-related savings schemes which will see some employees making gains of more than £54,000.

Lloyds has added £1.4billion to its bill for compensating customers mis-sold payment protection insurance.

State-backed Lloyds Banking Group’s provision for payment protection insurance mis-selling has topped £13billion after it yesterday took another £1.4billion hit over the scandal.

A computer-generated image of how the Sizewell complex will look after construction of Sizewell C.

Development of Sizewell C took a huge step forward today as the companies were announced that will build its sister nuclear power station in Somerset.

Gary Allen, operations manager,  with Diane Allen and Graham Allen at Ipswich-based Ajax Domestic Spares which is celebratiing 40 years in business.

Ajax Domestic Spares has marked 40 years in business in style by launching a new showroom in Foxhall Road, Ipswich.

Most read

Most commented

Topic pages