Bank of England’s rates at record low
Price, wage outlook still weak
THE BANK of England (BoE) kept interest rates steady at a record-low 0.5 percent yesterday, judging that the outlook for prices and wages is still too weak for it to raise the cost of borrowing despite solid growth prospects.
The Bank issued no statement but Governor Mark Carney will explain more tomorrow when he presents a quarterly update to the central bank’s forecasts for growth and inflation.
Most economists do not expect the BoE to raise interest rates – which have been unchanged for more than six years – until early 2016, and none of those polled by Reuters last week expected the BoE to raise rates this month.
The US Federal Reserve is expected to start raising rates this year, followed by the BoE, while the European Central Bank is further behind as it is in the early stages of a major stimulus programme to revive the euro zone economy.
Analysts are waiting to find out when the BoE expects inflation to return to its 2 percent target after slumping to a record-low zero percent in February and March due to a tumble in global oil prices.
The BoE delayed its interest rate decision from last week to avoid clashing with an election which unexpectedly saw Prime Minister David Cameron’s Conservative Party return to power with an outright majority.
Economists say the election result is likely to reinforce the BoE’s view that there is no need for interest rates to rise soon as Cameron’s government will continue to tighten fiscal policy with the aim of eliminating its budget deficit by 2019.
In February the BoE forecast it would take around two years for inflation to return to target, while growth would continue at an above-average pace of just under 3 percent, as the country makes up ground lost during the financial crisis.
Since then, growth in the first three months of this year has come in weaker than the Bank expected at just 0.3 percent. Economists think the BoE may have to nudge down its growth forecasts. – Reuters