Quantcast
Menu
Save, make, understand money

Investing

BoE: We may bring forward rate decision as economy recovers

Dan Jones
Written By:
Dan Jones
Posted:
Updated:
05/12/2014

The Bank of England has sharply revised its unemployment forecasts but emphasised this does not mean it is guaranteed to hike rates once the 7% threshold is reached.

As part of its forward guidance policy, the Bank has committed to making no decision on raising interest rates until the unemployment rate reaches 7%, a move which it said in August could take three years.

But today’s quarterly Inflation Report saw the BoE acknowledge that threshold is now likely to be reached by either Q3 2015, under one scenario, or as soon as Q4 2014 under another.

That followed separate news this morning that the unemployment rate fell from 7.7% to 7.6% in Q3 this year.

Speaking this morning, Bank governor Mark Carney pointed out the 7% level acts as a threshold, not an automatic trigger for it to raise rates – particularly now the Bank has revised down medium-term inflation forecasts.

“One can imagine a scenario where the 7% threshold is reached but the best decision is to leave interest rates unchanged,” he said.

The Bank said in its report this morning that this month’s rate decision saw “the [Monetary Policy] Committee reiterate that reaching the unemployment threshold would not necessarily trigger an immediate policy response.”

“Rather the setting of policy at that point would depend on the outlook for inflation relative to the target and on the need to provide continued support to output and employment.”

Carney said the UK has “one of the strongest recoveries in the advanced world” but repeated his contention that growth will remain modest compared with past recoveries.

The Bank also upgraded its forecasts for UK growth once again, and now predicts the UK economy will grow by 2.8% next year, up from a prediction of 2.5% in August.

However, deputy governor Charlie Bean said the “key message” of forward guidance is that policy “is not going to be linked to growth, but to the elimination of slack [in the economy]”.