Carney sticks to his guns on rates

Unemployment has fallen, but the Bank of England is holding fire on raising interest rates.

Despite stronger British jobs data, with unemployment at its lowest levels since 2009, the Bank of England downplayed growing speculation that it was planning a hike in interest rates early next year, or even before Christmas.

Instead, it released data on projected interest rates in its latest inflation report, which heavily implied there would be no change until the second quarter of 2015.

However, Mark Carney emphasised in his press conference that rising business investment showed the recovery was picking up pace. The BoE also upgraded its growth forecast for 2015 to 2.9% (from 2.7%). This year's forecast was unchanged.

What the commentators said

During the same three-month period, unemployment "fell by 133,000". One of the key reasons behind this was the growth in self-employment, with almost one in seven people working for themselves, "the highest level since records began in 1971".

However, other commentators felt that the picture was not as bright as employment alone suggested. "Real wage growth is back, but it's weaker than we'd expected," said Peter Spence in City AM.

Yes, total wages rose by 1.7%, slightly higher than the inflation rate of 1.6% but when bonuses are excluded, the rate of wage increase falls to 1.3%, which "is still lower than headline inflation and less than the 1.4% increase reported last month". This means that for most people wages are still falling in real terms.

The overall tone of the report and the press conference were "dovish", said Samuel Tombs of Capital Economics. Indeed, the monetary policy committee thinks "the amount of spare capacity in the economy has only reduced slightly since February's Inflation Report".

Carney also emphasised that "monetary policy was not the right tool to use to cool the housing market", reducing the chances of the central bank being pushed into a rate rise simply to try to cool house price inflation.

As a result, Capital Economics expects interest rates to stay "on hold until the second half of next year, later than the market and most economists expect".

Recommended

How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Hundreds of mortgage products withdrawn as interest rates surge
Mortgages

Hundreds of mortgage products withdrawn as interest rates surge

Hundreds of mortgage products have been withdrawn after sterling crashed to the lowest levels in decades against the dollar and the Bank of England sa…
28 Sep 2022
Which house-price index is the best?
Property

Which house-price index is the best?

Britain is obsessed with house prices, and we have at least four house-price indices to choose from to measure the rate of increase in the value of ou…
27 Sep 2022
What makes up the price of a litre of petrol?
Budget

What makes up the price of a litre of petrol?

The cost of filling the average car with fuel is falling, but is still approaching £100. How is that made up? Saloni Sardana explains just what makes …
27 Sep 2022

Most Popular

Beating inflation takes more luck than skill – but are we about to get lucky?
Inflation

Beating inflation takes more luck than skill – but are we about to get lucky?

The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank…
26 Sep 2022
The pick of this year's best-performing investment trusts
Investment trusts

The pick of this year's best-performing investment trusts

Market conditions haven’t been easy, but these investment trusts have delivered strong growth, says David Stevenson.
23 Sep 2022
The hidden cost of employee share schemes
Investment strategy

The hidden cost of employee share schemes

Paying employees in shares comes at a cost to investors – but it isn’t always easy to see how much, says Stephen Clapham.
26 Sep 2022