UK

BoE Holds Interest Rates At 0.5% As Mark Carney Under Pressure

09/01/2014 12:24 GMT | Updated 25/01/2014 21:01 GMT
ASSOCIATED PRESS
Mark Carney, governor of the Bank of England, speaks during his address to business leaders in Nottingham, U.K., on Wednesday, Aug. 28, 2013. Carney said officials are ready to add stimulus if investor expectations for higher interest rates rise too far and undermine the recovery. Photographer: Nigel Roddis/Pool/BloombergMark Carney, Governor of the Bank of England, speaks during his address to business leaders in Nottingham, England, Wednesday, Aug. 28, 2013. Carney said officials are ready to add stimulus if investor expectations for higher interest rates rise too far and undermine the recovery. (AP Photo/Nigel Roddis, Pool)

The Bank of England has kept interest rates at their historic low of 0.5%, making it nearly five years since they last changed the base rate.

The latest decision by the Bank of England's Monetary Policy Committee comes after the Bank's pledge last year not to consider increasing interest rates until the unemployment rate falls to 7%, predicting that this would not happen until 2016.

However, the pace of the falling unemployment rate, down to 7.4% in October, has fed speculation that the threshold at which Bank officials consider interest rate rises under governor Mark Carney's "forward guidance" policy could be hit far sooner.

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Bank interest rates since 1700

City analysts expect the Bank to revise the unemployment threshold down from 7% to 6.5% next month. Alan Clarke of Scotiabank said unemployment was "falling like a stone".

He added: "We think that 7% will be hit in the early months of 2014. As a result, the Bank is likely to modify its forward guidance policy - lowering the threshold to 6.5% - most likely at the February inflation report."

Societe General's Brian Hilliard said the threshold could "easily" be reduced below 6.5%.

Howard Archer, chief economist at IHS Global Insight, said: "Unchanged interest rates were always a stone dead certainty at the January MPC meeting despite the economy’s healthy growth rate in recent months and current sharply falling unemployment.

Admittedly, it now looks highly possible that the unemployment rate will get down to the 7.0% threshold level that the Bank of England will consider whether interest rates should be raised during the first half of 2014 (in stark contrast to the Bank of England’s original expectation that this was unlikely to occur before mid-2016). However, the Bank of England has repeatedly stressed that under its forward guidance policy, an unemployment rate of 7.0% is not an automatic trigger for an interest rate hike, but a threshold level for considering the appropriate stance of monetary policy given the overall state of the economy.