This article is from the source 'guardian' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.theguardian.com/business/2013/aug/25/bank-england-interest-rates
The article has changed 3 times. There is an RSS feed of changes available.
| Version 1 | Version 2 |
|---|---|
| Bank of England governor to hold firm on record low interest rates | Bank of England governor to hold firm on record low interest rates |
| (25 days later) | |
| The Bank of England governor, Mark Carney, will reiterate his pledge to keep Britain's borrowing costs at record lows until the recovery is secured, in the face of growing scepticism, when he gives his maiden public speech in the UK this week. | The Bank of England governor, Mark Carney, will reiterate his pledge to keep Britain's borrowing costs at record lows until the recovery is secured, in the face of growing scepticism, when he gives his maiden public speech in the UK this week. |
| Carney is expected to use an appearance at Nottingham University on Wednesday to challenge hawks in the City who doubt whether he can maintain interest rates at record lows until 2016. | Carney is expected to use an appearance at Nottingham University on Wednesday to challenge hawks in the City who doubt whether he can maintain interest rates at record lows until 2016. |
| Economists predict that Mervyn King's successor will repeat his July warning that market expectations of an earlier rate rise are "unwarranted". Under the Bank's new forward guidance, it will not raise rates until another 750,000 jobs have been created in the UK economy. | Economists predict that Mervyn King's successor will repeat his July warning that market expectations of an earlier rate rise are "unwarranted". Under the Bank's new forward guidance, it will not raise rates until another 750,000 jobs have been created in the UK economy. |
| Rob Wood, the chief UK economist at Berenberg Bank, reckons Carney will tell business leaders in Nottingham that this will not be derailed by last Friday's news that the UK economy grew by a stronger-than-expected 0.7% in the last quarter. | Rob Wood, the chief UK economist at Berenberg Bank, reckons Carney will tell business leaders in Nottingham that this will not be derailed by last Friday's news that the UK economy grew by a stronger-than-expected 0.7% in the last quarter. |
| "It is important that Mark Carney and his sidekicks at the BoE are able to keep expectations of the first rate hike from getting unhinged from the state of the economy," said Wood. "Carney will probably lead the charge next week against unconvinced markets, with his 28 August speech likely to try and talk down interest rate expectations." | "It is important that Mark Carney and his sidekicks at the BoE are able to keep expectations of the first rate hike from getting unhinged from the state of the economy," said Wood. "Carney will probably lead the charge next week against unconvinced markets, with his 28 August speech likely to try and talk down interest rate expectations." |
| The Bank's latest forecasts show rates remaining at 0.5% for three more years. However, the unemployment peg has not yet had the desired effect, with the financial markets pricing in a rate rise in 2015. | The Bank's latest forecasts show rates remaining at 0.5% for three more years. However, the unemployment peg has not yet had the desired effect, with the financial markets pricing in a rate rise in 2015. |
| Many City experts remain unconvinced by Carney's plan. As James Knightley, an economist at ING Bank, explained: "With inflation remaining sticky and the economy continuing to create jobs, we continue to believe that the first Bank of England rate hike is more likely to come in early 2015." | Many City experts remain unconvinced by Carney's plan. As James Knightley, an economist at ING Bank, explained: "With inflation remaining sticky and the economy continuing to create jobs, we continue to believe that the first Bank of England rate hike is more likely to come in early 2015." |
| The City analyst Louise Cooper fears that forward guidance will not, on its own, encourage UK firms to spend more. "What we know from the downturn is that companies have en masse paid back debt, strengthened their financial position and refinanced debt to low interest rates," Cooper wrote. "What we haven't seen is a boom in capital expenditure – quite the opposite – profit margins are high because money has not been invested. What businesses' bosses really need to see is signs of a stronger economy to get them to spend their cash." | The City analyst Louise Cooper fears that forward guidance will not, on its own, encourage UK firms to spend more. "What we know from the downturn is that companies have en masse paid back debt, strengthened their financial position and refinanced debt to low interest rates," Cooper wrote. "What we haven't seen is a boom in capital expenditure – quite the opposite – profit margins are high because money has not been invested. What businesses' bosses really need to see is signs of a stronger economy to get them to spend their cash." |
| Carney has promised to abandon the jobs target if UK inflation, or inflation expectations, rise too high. | Carney has promised to abandon the jobs target if UK inflation, or inflation expectations, rise too high. |
| Kit Juckes, a senior currency strategist at Société Générale, believes this means the Bank is lumbered with a headache of its own making. "It's not the forward guidance that is misguided; it's the reference to unemployment and inflation," said Juckes. "The Phillips curve, which argued that there is a trade-off between inflation and unemployment, was based on UK data from the 19th to the mid-20th century. If you plot UK unemployment against inflation for the UK since the 1990s, the relationship is basically nonexistent." | Kit Juckes, a senior currency strategist at Société Générale, believes this means the Bank is lumbered with a headache of its own making. "It's not the forward guidance that is misguided; it's the reference to unemployment and inflation," said Juckes. "The Phillips curve, which argued that there is a trade-off between inflation and unemployment, was based on UK data from the 19th to the mid-20th century. If you plot UK unemployment against inflation for the UK since the 1990s, the relationship is basically nonexistent." |
| Charlie Bean, one of Carney's deputy governors, told fellow central bankers and economists in Jackson Hole, Wyoming, on Saturday that the forward guidance pledge would make UK monetary policy more effective. | Charlie Bean, one of Carney's deputy governors, told fellow central bankers and economists in Jackson Hole, Wyoming, on Saturday that the forward guidance pledge would make UK monetary policy more effective. |
| But despite the prospect of interest rates remaining so low, UK savers and investors are, on average, holding nearly half of their portfolio in cash, according to new figures compiled by Investec Wealth & Investment, which also showed that 28% of investors have increased the proportion of assets held in cash over the last year. | But despite the prospect of interest rates remaining so low, UK savers and investors are, on average, holding nearly half of their portfolio in cash, according to new figures compiled by Investec Wealth & Investment, which also showed that 28% of investors have increased the proportion of assets held in cash over the last year. |
| "Many investors are favouring cash despite harbouring concerns about losing value due to low interest rates and inflation: nearly half (46%) of respondents said they were concerned or very concerned that their cash savings may be losing value in real terms while only 4% of investors were unconcerned by this," Investec reported on Sunday. | "Many investors are favouring cash despite harbouring concerns about losing value due to low interest rates and inflation: nearly half (46%) of respondents said they were concerned or very concerned that their cash savings may be losing value in real terms while only 4% of investors were unconcerned by this," Investec reported on Sunday. |
| One member of the Bank's monetary policy committee has gone public with his concerns over forward guidance. Martin Weale, who opposed the move, told the Financial Times there was a danger that the public would conclude that the Bank was now targeting a higher inflation rate. "The risk is that people in practice will interpret it as an increase in the inflation target. And obviously everyone at the BoE is doing their best to minimise that risk," Weale said. | One member of the Bank's monetary policy committee has gone public with his concerns over forward guidance. Martin Weale, who opposed the move, told the Financial Times there was a danger that the public would conclude that the Bank was now targeting a higher inflation rate. "The risk is that people in practice will interpret it as an increase in the inflation target. And obviously everyone at the BoE is doing their best to minimise that risk," Weale said. |
| Our editors' picks for the day's top news and commentary delivered to your inbox each morning. |