City analysts expect pressure on Bank to raise rates in 2014

 
Julian Harris
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THE BANK of England will hold off from any rise in interest rates in the opening months of next year even if unemployment keeps falling, analysts say.

Yet some economists believe the Bank’s monetary policy committee (MPC) will come under intense pressure to tighten its stance.

A report from City-based Fathom Consulting said yesterday that price pressures may force the MPC’s hand.

“With the output gap closed, and with productivity unlikely to respond to the pick-up in demand, UK inflation is likely to rise steadily through 2014,” it said, forecasting 3.5 per cent inflation by the end of next year.

“Our concern is that fears about triggering a second collapse in the UK housing market might cause the committee to hold fire. [But] if it waits too long, we risk seeing a good old fashioned sterling crisis.”

Bank governor Mark Carney introduced forward guidance in the summer, pledging that – in the absence of three so-called knockout risks – rates will stay anchored at 0.5 per cent at least until unemployment falls to seven per cent.

Yet he and his colleagues have been stressing recently that they may hold rates down even if the unemployment rate sinks below the seven per cent mark next year.