News Column

Britain to keep options open as interest rate may increase

August 11, 2014


London: A year after the Bank of England (BoE) launched forward guidance on monetary policy, governor Mark Carney faces the opposite challenge next week to say as little as possible about exactly when interest rates will start rising.

Carney is due to present the British central bank's updated economic forecasts at 0930GMT on Tuesday.

This time last year, the BoE committed to keep interest rates on hold for the foreseeable future. But a more robust recovery than expected and in particular a sharp drop in unemployment now means a rate rise is on the cards for either late this year or early 2015.

This would make it the world's first major central bank to raise rates since the end of the financial crisis, despite Britain taking longer than most countries to return to its previous level of output.

Longer-term message

Carney is unlikely to want to say much more on the exact timing of a rate rise. Instead, he is likely to emphasise his longer-term message that borrowing costs will increase gradually and peak at a level well below the pre-crisis norm.

"We expect some ambiguity about whether it is the fourth quarter or the first quarter next year. It makes sense for them to keep their options open," said Melanie Baker, a UK economist at Morgan Stanley.

While Carney surprised markets in June by saying they had underestimated the chance of a rate rise this year, more recently with expectations for a November move hovering at 50 per cent he has described the timing as 'data dependent'.

Britain's economy has continued to perform strongly over the past three months, with only tentative signs.

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Source: Times of Oman

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