Bank expected to keep rate on hold


Published: Thursday 9th October 2014 by The News Editor

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Interest rates are expected to remain on hold today as signs of slowing economic growth and a cooling housing market ease pressure on the Bank of England for an imminent hike.

The Bank rate has been on hold at 0.5% for more than five years and governor Mark Carney has indicated that the time for an increase is nearing amid the recovery.

But though gross domestic product (GDP) growth accelerated to 0.9% in the second quarter, latest economic data – showing the recovery in manufacturing almost grinding to a standstill – has led to the claim that the upturn is “losing its legs”.

The inflation rate of 1.5% – which may come under further downward pressure from the supermarket price war – is likely to further ease any pressure for a rise.

Meanwhile, latest Halifax figures show the pace of house price increases slowing – while a separate report this week by the Centre for Economics and Business Research predicted that they would fall by 0.8% over 2015.

Interest rates are widely expected to rise next February, though some analysts expect a first increase to come as early as next month, to coincide with the Bank’s latest economic projections in its quarterly inflation report.

Two members of the rate-setting Monetary Policy Committee (MPC) voted for a 0.25% increase in August and continued their dissent in September, but until now have been unable to persuade any other members of the nine-member body to join them.

The MPC is looking for signs of improving wages before a hike – but though this has yet to materialise, the so-called “hawks” on the committee argue that interest rate policy ought to be anticipating a sharp increase in pay.

Recent data revisions by the Office for National Statistics (ONS) showed that GDP was now 6.6%, or £27.8 billion, bigger than previously thought, in current prices.

The figures revealed that the economy surpassed its pre-crisis peak much earlier than previously thought and was now 2.7% ahead of its level at the start of 2008.

Investec economist Philip Shaw said international uncertainties – with military action against Islamic extremists in the Middle East and the eurozone economy stagnating – would add to most MPC members’ inclination to leave rates on hold for now.

He added: “The economic recovery is becoming increasingly entrenched, but as yet there is not sufficient evidence to begin to normalise the stance of monetary policy.”

Published: Thursday 9th October 2014 by The News Editor

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