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Rates to remain low until 2015

7/4/14

By John-Paul Ford Rojas

Bank of England rate-setters are expected to leave the cost of borrowing on hold this week amid signs that the pace of the recovery may be slowing down.

Several economists believe the Bank's Monetary Policy Committee (MPC) will not lift interest rates from 0.5% - where they have been held since 2009 - until next year.

They have been held at the low level to help nurse the economy back to health.

The Bank had previously pledged not to lift them until a fall in unemployment to 7%.

GDP remains below pre-recession level

But that "forward guidance" policy has now been abandoned after joblessness declined more quickly than had been expected as growth picked up speed last year.

However, gross domestic product remains below its pre-recession level six years ago.

Rate-setters are now using a new "fuzzy" guidance linking monetary policy to a more opaque measure of how far the economy is running below its capacity.

They have indicated that more sustainable growth is needed before any hike.

Caution over the state of the recovery

Latest monthly survey figures from the three main sectors of the economy are unlikely to shake the MPC from its caution over the state of the recovery.

They showed that while construction, manufacturing and services were all continuing to grow robustly in March, the pace of expansion had slackened off.

This indicated that the recovery had slowed to its weakest pace in nine months.

Falling inflation, with the Consumer Prices Index (CPI) rate at 1.7% comfortably below the Bank's 2% target, also gives leeway to the Bank to leave interest rates on hold.


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