The Bank of England’s Monetary Policy Committee has announced that it is to keep interest rates at a record low of 0.5 per cent for another month, despite the fact that the UK’s economy is in robust shape.
In making the announcement, the BoE also revealed that it would be maintaining the size of its economic stimulus programme at £375 million.
Interest rates have been at 0.5 per cent for an unprecedented half-decade. However, while for now this seems to be accepted as the most appropriate approach, it is expected that interest rates will sooner, rather than later, rise.
While there is no immediate suggestion that this will happen in 2014, certainly during 2015, interest rates will rise. Some committee members are, after all, in favour of this.
Last month, for example, it was revealed that two members of the Monetary Policy Committee had voted for a rise in interest rates. This was notable for the fact that this was the first time in three years that this had been put forward.
According to the BoE, interest rates will rise when it is absolutely confident that progress and recovery is not just a short-term spike.
One area that it is keenly observing is pay rates, which have, despite the rapid pace of recovery as of late, been markedly weak.
“A number of question marks surround the timing of the first move,” Philip Shaw, chief economist at Investec, was quoted by Reuters as saying.
“Much will depend on the dynamics of the incoming data and whether the woes in the euro zone begin to have a more significant impact on domestic activity.”
Recently, the World Economic Forum reported that the UK had moved up the list of the world’s best performing economies. It positioned it at a commendable ninth.
“The British recovery is stronger than previously thought. We see that Britain is becoming more competitive – moving up the global rankings,” commented chancellor George Osborne at the time.
“We see jobs being created in our country and that is evidence our plan is working … but I’m the first to say the risks from abroad are rising as well so we’ve got to go on providing economic security and that is the task ahead.”
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