Britain's economy roars back to health

As the recovery gathers pace, the Bank of England has come under pressure to raise interest rates.

Just as the International Monetary Fund (IMF) raised its 2014 forecast for Britain's growth from 1.9% to 2.4%, the latest UK jobs data revealed the strongest employment growth in 40 years. The headline unemployment rate slid from 7.4% to 7.1% in the three months to November.

While the strong jobs market is a good sign for the economy and good news for the government investors were a little concerned that the Bank of England may end up having to raise interest rates sooner than expected.

What the commentators said

Less than a year ago the IMF was fretting that UK growth could flat-line for years. The big question now is what this surprising strength in the labour market might mean for interest rates.

Last summer the Bank of England said it wouldn't consider raising borrowing costs until the jobless rate has fallen to 7%. It didn't expect the threshold to be met for two years. But as Philip Shaw of Investec noted, "it's quite possible" we will be at the Bank's threshold in a month's time. "There will have to be a change in guidance relatively soon."

The minutes of the Bank's January meeting noted that the 7% mark was not an automatic trigger for rate rises, and any hikes will be gradual, said Bank of America Merrill Lynch (BAML). Expect an update to the guidance in February's Inflation Report.

The Bank could say it is moving the unemployment rate threshold down to 6.5%, or be more specific about keeping rates on hold for some time after the 7% target is met. Rates are still unlikely to rise before February 2015, reckons BAML. This dovishness should keep a lid on the pound.

Recommended

Greensill, Cameron and the return of Tory sleaze
UK Economy

Greensill, Cameron and the return of Tory sleaze

The collapse of Greensill Capital threw a spotlight on political lobbying when it emerged that former PM David Cameron had been fighting its corner. J…
17 Apr 2021
Recovery Loan Scheme: the latest government aid package for small businesses
Small business

Recovery Loan Scheme: the latest government aid package for small businesses

The Recovery Loan Scheme will help companies weather the pandemic
16 Apr 2021
UK mid-cap stocks look forward to life after lockdown
UK stockmarkets

UK mid-cap stocks look forward to life after lockdown

The FTSE 250 hit an all-time high at the end of last week, as investors look to a post-lockdown recovery.
16 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021

Most Popular

The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
What does the Coinbase listing mean for bitcoin and other cryptocurrencies?
Bitcoin

What does the Coinbase listing mean for bitcoin and other cryptocurrencies?

As the bitcoin price hit new highs, the world's biggest cryptocurrency exchange, Coinbase, listed on the stockmarket. John Stepek looks at what that m…
15 Apr 2021
Properties for sale for around £400,000
Houses for sale

Properties for sale for around £400,000

From a converted church in Banffshire with views towards the Cairngorms National Park, to a period property in the Georgian market town of Beverley, e…
2 Apr 2021