Bank of England holds the line as employment tests guidance

THE BANK of England made no changes to its forward guidance policy this month, holding UK interest rates at their current low for the opening month of 2014.

The monetary policy committee (MPC) was widely expected to keep the Bank’s benchmark interest rate at 0.5 per cent, in line with their forward guidance policy, which aims to keep policy ultra-loose at least until unemployment falls to seven per cent or below.

However, unemployment has dropped at a faster rate than the Bank originally expected, suggesting that a hike in rates may come as early as this year.

Investec’s Philip Shaw said that the Bank may move to clarify forward guidance, either by cutting its unemployment threshold to 6.5 per cent or saying that rate hikes would be contingent on pay growth. Shaw added that a decision could be made by the MPC in February.