Monthly Archives: May 2014

Interest RatesBank of England governor Mark Carney has suggested interest rates may be some way off saying there is still slack in economy that needs to be absorbed before a rise is considered.

In the February inflation report the Bank axed forward guidance based on employment falling below 7 per cent and moved to a system of looking at 18 indicators, among which is spare capacity in the economy.

When questioned about market expectations of a rate rise in Q2, Carney declined to comment but suggested the Bank is unlikely to raise interest rates soon.

The Bank’s May inflation report, published this morning, says: “Although the margin of spare capacity has probably narrowed a little since [February], the Monetary Policy Committee continue to judge that there remains scope to make greater inroads into slack before raising the Bank rate.”

In a press conference, Carney said: “That slack is evident in the 1.4 million people who are working part-time because they are unable to find full-time work, as well as in an unemployment rate of 6.8 per cent.”

Today’s inflation report also maintains the Bank’s position that when a rate rise comes it will be gradual and to a “level materially below its pre-crisis average”.

It also predicts growth of 2.9 per cent for next year, up from the Bank’s February forecast of 2.7 per cent. The forecast for this year remains unchanged at 3.4%.

On concerns the housing market is in danger of stalling economic recovery, the Bank of England said the Financial Policy Committee will take responsibility for taking action on cooling the market if necessary.

BOEThe Bank of England’s monetary policy committee has once again voted to maintain the base rate at 0.5 per cent – the 62nd consecutive month of record-low rates.

MPC members also voted to keep the Bank’s programme of quantitative easing at £375bn.

The last change to base rate was a 0.5 per cent reduction to its current level on 5 March 2009. On the same day the Bank launched its QE programme.

Since August, the Bank of England has sought to give consumers an indication of when base rate is going to rise through a policy of forward guidance.

It originally stated that base rate would not increase until unemployment dipped below 7 per cent or there was an unexpected spike in inflation.

However, in February Bank of England governor Mark Carney changed how the bank uses forward guidance, just six months after first introducing the policy to the UK, although he maintains the policy has worked so far.

The overhaul of forward guidance sees the direct link with employment dropped so the BoE can focus on a much wider range of indicators focusing on absorbing all of the spare capacity in the economy. This will see the Bank publish forecasts of 18 more economic indicators for the first time.