Bank of England to stick with rate pledge despite more upbeat forecasts Bank of England Governor Mark Carney is likely to stress on Wednesday that he is in no rush to raise interest rates despite a marked brightening in Britains economic outlook over the past three months. The central bank will release fresh forecasts at 1030 GMT, when it looks set to revise up its growth outlook and predict lower unemployment and inflation than three months ago, reflecting data that show Britains recovery is strengthening. But one thing that economists do not expect to change from August is the BoEs commitment to keep interest rates at their record-low 0.5 percent until unemployment falls to 7 percent. Carney launched the forward guidance policy in August shortly after taking the reins of the central bank. At the time, the BoE predicted unemployment would remain above 7 percent until 2016. Even at the time, most private-sector economists thought the forecast was too gloomy. Now they expect the central bank to predict a slightly faster fall in unemployment while at the same time emphasising that Britain still has to recover a lot of ground lost during the financial crisis. The latest data are unlikely to dramatically change the BoEs assessment that rates should stay on hold for a long time, Rob Wood, of Berenberg bank, said. The message is likely to be that the UK has a long way to go, and the UK is in the early stages of a recovery that still needs a lot of stimulus. Nonetheless, financial markets are looking for any hint that the BoE might be considering an earlier interest rate rise, something which has pushed the spread between British and German government bond yields to its widest in several years, given the weak state of the euro zone. Britains economy grew 0.8 percent in the three months to September - well above the 0.5 percent forecast by the BoE - and many economists expect unemployment data for the same period due at 0930 GMT to show a drop in the jobless rate to 7.6 percent. Even inflation - a bugbear for the BoE since the financial crisis - has lately fallen more than expected, hitting 2.2 percent in October, its lowest level since September 2012 and a far cry from the BoEs August forecast of more than 2.8 percent. Wood expected one of the BoEs forecasts would show a 50 percent chance of unemployment falling below 7 percent as soon as the final quarter of 2015, compared to the second quarter of 2016 in Augusts forecasts. Other BoE forecasts suggested unemployment would stay above 7 percent throughout 2016. Unlike private-sector forecasters, the BoE is convinced that Britains weak labour market productivity will rebound sharply as growth picks up, allowing rapid expansion without creating significant extra demand for workers. Carney is also likely to stress that an unemployment rate of 7 percent is not a trigger for higher interest rates, but merely marks a point at which the central bank would start to consider tightening monetary policy. Britains unemployment rate was nearer 5 percent before the financial crisis, and deputy governor Charlie Bean suggested last month that the 7 percent threshold could be lowered if domestic inflation pressures appeared muted.
Posted on: Wed, 13 Nov 2013 02:23:01 +0000
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