The Bank of England kept its monetary policy unchanged yesterday as it worked on a new plan to steer interest rate expectations after its previous one was overtaken by Britain’s strong economic recovery.
The BoE left its bank rate at 0.5%, where it has stood since the depths of the financial crisis in 2009.
Britain’s economy last year staged a surprise turnaround and markets are pricing in at least some chance of a rate hike late this year. BoE governor Mark Carney and other policymakers stress that they are in no rush to raise rates.
A plan they announced last August — not even to think about higher interest rates until unemployment fell to 7% — has been rendered almost obsolete by a plunge in the jobless rate to just above that level.
The BoE is expected to give at least some clues as to its new guidance plan next week when the central bank publishes its quarterly economic forecasts.
Options include broadening indicators used from the unemployment rate to include wage growth, or copying the US Federal Reserve’s ‘dot chart’ — a published matrix of each policymaker’s view on future interest rates.
Britain’s economy appears to have started 2014 on the same strong footing as in late 2013.
The manufacturing and services industries showed strong growth in January, according to surveys this week. Data yesterday showed new car sales and house prices rose more than 7% in January compared with the same month last year.
But some of the pressure on the BoE to show it will not be rushed into a rate hike has diminished. Inflation has eased to the bank’s 2% target and yields on 10-year gilts have slid to a three-month low as turmoil in emerging markets has prompted investors to buy safer securities.
© Irish Examiner Ltd. All rights reserved