Sunny

Sunny

max temp: 27°C

min temp: 16°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

Post Office services to return to Yoxford

The Post Office in a Suffolk town is moving to new premises, and will offer longer opening hours.

Dame Fiona Kendrick:, chief executive of Nestlé  UK & Ireland

Food giant Nestlé has announced plans to close its defined benefit pension scheme, sparking the threat of industrial action.

The Treasury has sold another 1% stake in Lloyds Banking Group.

The taxpayers’ stake in Lloyds Banking Group has fallen to below 16% after the Government sold off another tranche of shares.

The installation of solar panels on the roof of Precision Marketing Group's premises in Lamdin Road, Bury St Edmunds

A Suffolk-based firm will be among the organisations taking part in a nation-wide celebration of solar energy tomorrow.

Candy Gaga'’s Wanda Hewell, right, and daughter, Cherish.

Tower Ramparts in Ipswich now has its very own castle – thanks to the success of a local sweet shop business.

Stansted Airport

A report into the future of Britain’s airports does not rule out a second runway at Stansted – and raises fears of extra night flights to the Essex airport.

Growth in manufacturing eased last month  to its slowest level in two years.

Britain’s manufacturing sector grew at its slowest pace in more than two years last month, impacted by subdued demand from Europe.

Speedy Hire
 has warned that its results for this year will come in

Tool rental business Speedy Hire saw nearly a third of its stock market value wiped off after it announced the shock departure of its chief executive and warned over a major blow to full year profits.

Greene King chief executive Rooney Anand.

Pubs and brewing group Greene King today posted another year of record revenues, with sales within its key Retail division topping £1billion for the first time.

Suffolk Coastal considers convenience store bid

Planning chiefs have responded to concerns about noise and antisocial behaviour arising from proposals for a new convenience store in Kesgrave by insisting on closing times being brought forward an hour and the installation of a barrier to restrict overnight parking.

Most read

Most commented

Topic pages