UK Interest Rates Unlikely to Rise

By Simon Morris On Friday, February 14 th, 2014 · no Comments · In , ,

Governor of the Bank of England Mark Carney has announced this week that UK interest rates are unlikely to be raised any time before next year’s national election. Furthermore Carney announced key changes to Bank of England policy linking interest rates to unemployment levels.

Carney’s revelation comes on the back of data suggesting bullish forecasts for UK economic growth. As such the Governor announced that the previous forward guidance policy tying interest rates to unemployment rates was to be scrapped, in favour of using broader economic factors to determine when the national interest rate should be raised.

The Bank of England announced its flagship forward guidance policy concerning interest rates last August. The policy held interest rates at their current low of 0.5% until the UK unemployment rate fell below 7%.

However Carney has now suggested that projection of stronger economic growth, along with unemployment falling faster than expected, means that the Bank is now deciding to abandon the use of any single economic factor in determining when interest rates should be raised.

Specifically experts are predicting that if current forecasts are accurate, it would mean the perfect economic situation for the Chancellor going into next year’s general election due to strengthening growth, unemployment rates already hovering over the 7% mark, recovering incomes and productivity. This however can only be maintained with steady interest rates.

The Bank seemed optimistic about what holding the interest rate at 0.5% would bring to the nation’s economy. It stated that it was willing to see boom-time rates of growth, even though interest rates could need to “remain at low levels for some time to come.” The Governor further asserted that this situation would see inflation rates remain stable.

On overall growth the Governor further pronounced that the Bank of England expects the national economy to grow by 3.4% throughout the course of 2014. The current forecast stood at 2.8% for the year ahead, and also stood higher than expectations released from most independent analysts.

The interest rate being held at 0.5% and policy being determined by broader economic factors will ensure that the UK economy continues on its way to sustained recovery after the hits it took under the Great Recession.

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