The Bank of England’s (BoE’s) Monetary Policy Committee (MPC) last week voted to keep the Bank Rate on hold at 0.5% and to maintain the stock of asset purchases (also known as quantitative easing) at £375billion.
Although recent economic data have been pointing to a robust recovery, the decision was hardly surprising, according to the Cebr.
Economist Danae Kyriakopoulou said: “Under its policy of forward guidance, the MPC has committed to keeping rates low to support economic growth and employment at least until the unemployment rate falls to 7.0% from its current rate of 7.7% (provided three added “knock-out” conditions concerning inflation and financial stability are not breached sooner).
“The interesting question is then whether the MPC has shifted their expectations of the future trend of unemployment, a possible scenario according to the latest minutes from the Committee’s previous meeting in early September – minutes from this month’s meeting will be published on the 23rd of October.
“Recent data indeed suggest a more optimistic view of the future trend of unemployment, compared with the BoE’s current forecast which shows the unemployment rate remaining above 7.0% until 2016. The UK’s recovery has started spreading across all broad industry sectors, with Purchasing Managers Indices (PMIs) in construction, manufacturing, and services reaching multi-year highs.
“Furthermore, business confidence measures, such as the ICAEW/Grant Thornton Business Confidence Monitor also point to strong sentiment set to sustain growth in the near future. And all this comes alongside a relatively benign inflation backdrop as slowing emerging markets ease global commodity prices.
“Overall, Cebr expects the UK economy to grow by at least 1.5% in 2013, and that growth in 2014 will comfortably exceed 2%, supported by strong business and consumer confidence. With the UK’s outlook continuing to improve, the Bank’s commitment to low rates until 2016 looks set to come under increasing pressure.”
daily alternative | alternative news – Monetary policy on hold – but for how much longer?