Just when we thought the Bank of England was going to announce an interest rate rise for later this year or early next, a report it released this morning said the 0.5% base rate would continue for now.
Commentators had expected Mark Carney to tell us when interest rates were going to go up, but the governor remained tight-lipped about the possibility of an increase from the 0.5% rate.
The BoE had previously promised that as the economy improved and unemployment fell, it would put interest rates up, however, it looks as though it will hold off for the time being.
It set a target of 7% unemployment – latest ONS figures show we’re at 6.8% – and inflation at 2% – which it is currently hovering around.
However, the bank’s Monetary Policy Committee estimated there was still around 1-1.5% of GDP in spare capacity in the economy which could be used up before the base rate needed to change. It admitted, though, there were a range of views within the committee and there was “considerable uncertainty” with this estimate.
“Securing the recovery is like making it through the qualifying rounds of the World Cup,” Carney said in a statement.
“That is an achievement, but not the ultimate goal. The real tournament is just beginning and its prize is a strong, sustained and balanced expansion. Across the Bank we are setting policy in order to help win that prize for the good of the people of the United Kingdom.”
A BoE spokesman said the forecast showed the market curve was consistent with rates rising in the second quarter of 2015, however it made no commitment to this.
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