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‘Case for low interest rates’ strong despite unemployment falls – MPC

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  • 20/11/2013
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‘Case for low interest rates’ strong despite unemployment falls – MPC
The Bank of England’s top economists believe there is a case for keeping interest rates low even when their own conditions for a rise have been met, the Monetary Policy Committee Minutes revealed.

Under forward guidance set out in August, the MPC may consider increasing the Bank Base Rate once the unemployment rate has fallen to 7%, and certain other conditions have been satisfied.

But despite an increasingly positive outlook for the economy, the Minutes argued uncertainties remain about the durability of the recovery.

They stated: “The projections for growth and inflation under constant Bank Rate underlined that there could be a case for not raising Bank Rate immediately when the 7% unemployment threshold was reached.”

The committee will reassess the nature of the recovery after unemployment reaches 7%, they added.

The Minutes also noted an increase in consumer confidence driven by the housing market: “Mortgage approvals had continued to increase, though this had yet to have a material impact on secured lending growth.”

Although house prices are rising steadily, there are considerable regional variations, the Minutes added.

Speculation about the Bank of England’s interest rate policy re-ignited this month when the central bank suggested unemployment could fall to 7% earlier than expected.

The Bank believes there is a 40% chance unemployment will reach the 7% threshold by the end of 2014 and a 60% chance it could happen before the end of 2015.

However, MPC member Martin Weale sought to downplay the impact of the revised forecast, stressing the Bank could keep interest rates low regardless.

 

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