Carney to be tested on low rates

Tim Wallace
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BRITAIN could have less than a year left before the Bank of England considers raising interest rates, analysts hinted yesterday.

The warning came as the Bank’s monetary policy committee (MPC) held interest rates again yesterday.

The base rate has been held at 0.5 per cent for more than five years, through the financial crisis and early stages of the recovery.

Bank governor Mark Carney has promised not to look at raising rates until he sees signs that the spare capacity in the economy is being used up.

In particular he is looking at the jobs market, including the level of unemployment and the level of wages.

So far, he thinks there is space for the economy to grow without increasing inflation, and so he does not need to raise interest rates.

But if unemployment falls sharply again, analysts expect to begin to see more signs of tightening from the Bank of England.

“Next week’s UK labour market data will provide the clearest guidance vis-a-vis the monetary policy outlook – the ‘six selected indicators of slack’ have become the MPC’s principal focus in terms of its guidance,” said RBS economist Ross Walker.

“What seems more likely to grab the headlines would be any uplift in wage inflation (base effects here are rather undemanding). We would be wary about reading too much into any such near-term pick-up in wage inflation but the markets seem to be increasingly alert to these risks.”