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/2014/may/14/bank-of-england-interest-rates-inflation-report
The article has changed 5 times. There is an RSS feed of changes available.
| Version 3 | Version 4 |
|---|---|
| Pound falls as Bank of England quashes speculation on early interest rate rise | Pound falls as Bank of England quashes speculation on early interest rate rise |
| (about 5 hours later) | |
| The pound has fallen against other currencies after the Bank of England quashed growing City speculation of an early increase in interest rates to rein in the economy. | |
| Interest rates on government gilts also fell as Threadneedle Street used its quarterly snapshot of the economy to say that the UK was not ready for an end to emergency-level borrowing costs. | |
| Mark Carney, the Bank's governor, said there was still spare capacity to use up before interest rates would be increased from their record low of 0.5%, adding that, even when policy was tightened, the action would be "gradual and limited". | |
| "We should remember the economy has only just begun to head back to normal," he said. "The exact timing of the first adjustment of Bank rate will be a product of the evolution of the economy. Today is not the day." | "We should remember the economy has only just begun to head back to normal," he said. "The exact timing of the first adjustment of Bank rate will be a product of the evolution of the economy. Today is not the day." |
| The view reflected in the May inflation report was at odds with the market expectation that the first rise in rates would come in the first quarter of 2015, and some City economists have been calling for it to happen before the end of the year. | |
| Rob Wood, chief UK economist at Berenberg, said: "Our interpretation is that the rate setters are resisting the data strength as much they can. They seem keen to resist a hike this year. | Rob Wood, chief UK economist at Berenberg, said: "Our interpretation is that the rate setters are resisting the data strength as much they can. They seem keen to resist a hike this year. |
| "But, with growth running strong in their forecast, surveys showing no signs of growth slowing and unemployment close to 6% by the end of 2015, delaying that hike beyond the first quarter of 2015 would be untenable, in our view." | |
| The official interest rate has been held at 0.5% since March 2009. Carney said: "As time has moved on and the recovery has been sustained, the economy has edged closer to the point at which Bank rate will need gradually to rise. | The official interest rate has been held at 0.5% since March 2009. Carney said: "As time has moved on and the recovery has been sustained, the economy has edged closer to the point at which Bank rate will need gradually to rise. |
| "The exact timing will inevitably be the subject of considerable speculation and interest. The ultimate answer will depend on the evolution of the economy, particularly the degree of slack, the prospects for its absorption, and the broader inflation outlook." | "The exact timing will inevitably be the subject of considerable speculation and interest. The ultimate answer will depend on the evolution of the economy, particularly the degree of slack, the prospects for its absorption, and the broader inflation outlook." |
| The governor added that the Bank would not start to offload any of the £375bn of gilts it bought under its quantitative easing programme until official interest rates had risen to a level from which they could be "cut materially". | The governor added that the Bank would not start to offload any of the £375bn of gilts it bought under its quantitative easing programme until official interest rates had risen to a level from which they could be "cut materially". |
| The inflation report forecasts showed MPC members of the Bank's monetary policy committee still believed there was 1-1.5% of spare capacity in the economy to be used up before rates needed to rise following the UK's below-par performance at the onset of the crisis in 2008. Inflation is expected to stay close to the 2% target during the forecast period to early 2017. | |
| But the report also highlighted "considerable uncertainty" around the estimate of the amount of slack in the economy, suggesting a range of views among members of the committee. | |
| Carney said the slack was evident in the 1.4 million people who were working part-time because they were unable to find full-time work and a still relatively high unemployment rate. | |
| He said higher interest rates would not be used in the first instance as a tool to cool the housing market if signs of a bubble did begin to emerge. Monetary policy would only be used as "the last line of defence" after the new powers and tools handed to the Bank's financial policy committee (FPC) had been deployed. He also stressed there were limits to what that committee could achieve. | He said higher interest rates would not be used in the first instance as a tool to cool the housing market if signs of a bubble did begin to emerge. Monetary policy would only be used as "the last line of defence" after the new powers and tools handed to the Bank's financial policy committee (FPC) had been deployed. He also stressed there were limits to what that committee could achieve. |
| "What we don't have at the FPC and never will have is the ability to control all aspects of the housing market. We can't perform miracles. The FPC will not build a single one of the [thousands of new] houses that the economy needs. The FPC will not be targeting house prices. What the FPC can do is reduce risks that emanate from the housing market and help mitigate them," Carney said. The FPC will decide whether or not to use those tools at a meeting next month. | "What we don't have at the FPC and never will have is the ability to control all aspects of the housing market. We can't perform miracles. The FPC will not build a single one of the [thousands of new] houses that the economy needs. The FPC will not be targeting house prices. What the FPC can do is reduce risks that emanate from the housing market and help mitigate them," Carney said. The FPC will decide whether or not to use those tools at a meeting next month. |
| The Bank left its growth forecast for 2014 unchanged at 3.4%, but revised up its forecast for 2015 to 2.9% from its February forecast of 2.7%. Its forecast for 2016 is unchanged at 2.8%. | The Bank left its growth forecast for 2014 unchanged at 3.4%, but revised up its forecast for 2015 to 2.9% from its February forecast of 2.7%. Its forecast for 2016 is unchanged at 2.8%. |
| It warned there were risks that the recovery could prove to be unsustainable, because productivity and real incomes continue to disappoint or because business investment does not recover as expected. | |
| The Bank's policymakers expected the unemployment rate to fall to 6.7% in the first quarter of 2014, from 6.9% in the three months to February. But data published by the Office for National Statistics on Wednesday showed the actual jobless rate in the three months to March was 6.8%. | The Bank's policymakers expected the unemployment rate to fall to 6.7% in the first quarter of 2014, from 6.9% in the three months to February. But data published by the Office for National Statistics on Wednesday showed the actual jobless rate in the three months to March was 6.8%. |
| Over the whole forecast period, to early 2017, the Bank said it was expecting unemployment to fall faster than it was predicting in February. By the first quarter of 2017, the jobless rate is expected to be 5.9%, a sharp downgrade from the 6.3% predicted in February. | |
| The Bank said that, although the inflation rate fell to 1.6% in March, it was expected to move closer to the 2% target in the coming months as the falls in petrol prices in the spring of 2013 dropped out of the annual comparison. | |