UK: Interest rates set to stay on hold despite strengthening recovery

Bank of England governor Mark Carney.

Bank of England governor Mark Carney. - Credit: PA

Interest rates are expected to remain on hold once more today, despite further signs that the UK economic recovery is gathering pace.

Bank of England governor Mark Carney has already sought to allay fears that the better prospects could mean interest rates rising sooner than expected.

Policymakers have pledged not to raise rates from the current historic low of 0.5% until the jobless rate falls to 7%, although with the jobs market improving there had been fears that they could go up sooner than previously believed.

Mr Carney admits that the bank’s monetary policy committee now expects the 7% threshold to be reached earlier than it did in August.

However, he stressed to markets that the “forward guidance” linking interest rates to joblessness did not mean that reaching the threshold would automatically trigger a rate rise.

Mr Carney said: “We will continue to provide exceptional monetary stimulus so that British households and businesses have, for the first time in a long time, the confidence not just that the glass is half full, but that it will be filled.”

The low-interest rate policy is part of the bank’s monetary stimulus helping to nurse the UK back to health after the downturn, and also includes a quantitative easing programme injecting £375billion into the economy.

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Last week’s move to cool household lending by removing the mortgage element of the Funding for Lending scheme has further reduced the likelihood of an early rate hike.

Martin Beck, UK economist at Capital Economics, said: “Another fairly predictable meeting is in prospect, with policy staying on hold.”

Encouraging signs on the UK economy have continued to emerge in recent days, with positive surveys from the manufacturing, construction and services sectors fuelling expectations for GDP growth of around 1% this quarter. The output rose by 0.8% in the third quarter.