Overcast

Overcast

max temp: 11°C

min temp: 10°C

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.”

0 comments

The A120 could join the A12 at Rivenhall or Kelvedon instead of Marks Tey as potential routes for the new dualled road are revealed.

A woman in her 70s has died after a two-car crash on the B1106 in Elveden, near Thetford this afternoon.

Suffolk’s arachnid recorder said he would be “very surprised” if claims of a deadly spider infestation in the county were accurate.

If you are still struggling for Christmas gift ideas for your children, nieces and nephews, this could help you out. Here we list the must-have toys that will be under Christmas trees in Ipswich, Bury St Edmunds and Woodbridge this year.

Charlotte Smith-Jarvis finds great value at Pump and Grind in the centre of Ipswich.

A man accused of raping a woman he met on a dating website has been cleared by a jury.

Looking for a fun family day out in Suffolk or north Essex this weekend? We could have the answer.

Motorists heading to London will face delays on the roads early next year as Highways England undertake a series of roadworks.

Detectives investigating a double stabbing in Ipswich have been granted further time to question a 17-year-old boy from Ipswich who was arrested on suspicion of murder.

Most read

Most commented

HOT JOBS

Show Job Lists

Topic pages

Streetlife

Newsletter Sign Up

MyDate24 MyPhotos24