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BoE will reinforce low interest rate pledge – analyst

  • 11/09/2013
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BoE will reinforce low interest rate pledge – analyst
The Bank of England’s top economists will strengthen their commitment to low interest rates in the face of market speculation, an analyst has argued.

Société Générale chief UK economist Brian Hilliard was commenting on the news the UK unemployment rate had fallen to 7.7%. According to the Bank of England’s forward guidance, a fall to 7% could trigger a rise in the Bank base rate.

The drop was likely to fuel market speculation that interest rates would rise sooner than the Bank intended, Hilliard acknowledged.

However, he argued there was still some way to go to meet the threshold of 7%: “The Bank is not likely to feel any pressure to change its message so early in the life of forward guidance.

“Indeed, the more the market brings forward its expectations of the date of the first rate increase, the more Monetary Policy Committee members will respond by reiterating the simple message that the MPC has no intention of raising rates for three years.”

The view of the French bank was that the central bank would not raise rates until the end of 2015, he added.

In his first public speech last month, Bank of England governor Mark Carney reaffirmed his commitment to forward guidance on interest rates.

He suggested the Bank rate could stay low for three years and hit back at rumours interest rates could be forced up.

The interest rates on 70% of loans to households were linked to the base rate, he stressed: “Movements in longer-term market interest rates are certainly relevant, but what matters most to you is what actually happens to Bank rate, now and in the future.”

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