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Bank of England Maintains Record Low Interest Rate

Bank of England Maintains Record Low Interest Rate
Shawn Baldwin at the Bank of England Shawn Baldwin Images

The Bank of England (BOE) held their interest rates steady at their record low 0.5%–as expected, marking the 58 consecutive month of continuing the rate. Policymakers also decided to maintain the 375 billion sterling quantitative easing measures however no accompanying statement was released.

Market participants are expecting the newly minted Central Bank Governor Mark Carney to change the forward guidance policy as conditions improve. An interest rate change would be used to accelerate the economy by improving the credit conditions in the country. This seems likely as consumer prices rose at the lowest levels in 48 months in the country, this is evidence of positive growth measures in Great Britain’s economy and serve as a testament that it is on the upswing.

Governor Carney previously stated in August of 2013, that the Bank of England would reassess it’s current policy when the unemployment rate reached 7% anticipating that it wouldn’t be reached until 2016–however the rate has unexpectedly dropped off far sooner that the expected, making some economists speculate that a tightening policy might be implemented much sooner than was originally planned. Some market participants say don’t expect a rate increase before the middle of 2015.

I believe that the likelihood of the BOE maintaining low rates throughout 2014 is very low given the falling unemployment rate. Bear in mind that the growth rate in 2013 was very close to 2%, If this trend continues, expect Governor Carney to raise interest rates sometime in 2014. Look for some indication of guidance next month when the Bank of England’s quarterly inflation report is released.

Follow me on Twitter @ShawnDBaldwin

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