The latest Bank of England Inflation Report has altered Bank of England Governor Mark Carney’s Interest Rate Policy since the first Report (August 2013).
Now, reflecting the falling unemployment and economic recovery, policy will be determined by a wider range of indicators other than the previous indicator of unemployment falling to 7% or below. The report says the ‘Bank Rate may need to remain at low levels for some time to come’ and considers ‘economic slack’ being ‘substantially reduced’, in taking a gradual approach to rate increases. ‘When Bank Rate does begin to rise, the appropriate path so as to eliminate slack over the next two to three years and keep inflation close to the target is expected to be gradual’. Sterling rose to an almost 3 year high following the central banks forward guidance.
Although, with the ONS (Office of National Statistics) using some B of E Data, it will be interesting to see how they interpret the effects of the recent floods in their measurements: moving from Cornwall into the Thames Valley, M4 and M3 corridor. Mark Carney has said although the floods would influence the short-term outlook, there was unlikely to be any effect on overall growth – currently forecast at 3.4 per cent this year.
Will the UK still be seen as being in a bad but improving place?
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