Forward guidance sees Carney anchor rates despite recovery

The Bank of England has announced that rates have been held despite an improving economic picture.

Rates have been maintained at their historic lows of 0.5 per cent despite new data showing that the UK's services industry grew at the fastest rate since 2006 last month.

That is the latest in a string of datapoints indicating that the UK recovery is now taking root. Asset purchases were also held at £375bn.

Jeremy Cook, chief economist at the foreign exchange company, World First, said:

The disconnect between recent economic strength in the UK and monetary policy, in particular the forward guidance thereof, has never been so clear-cut.

My view is that we are not going to see a rate hike next year, as some financial instruments are pricing in, as structural unemployment will prove harder to bring down than most believe. Employers are working current employees harder and are unlikely to bring more people on unless confidence remains at these atypically high levels.

Speed of a recovery is one thing, durability is quite another, and Carney maybe should be focusing on ‘Exit Strength’ more than ‘Exit Velocity’.

Glenn Uniacke, senior dealer at Moneycorp, said:

The MPC’s decision to hold interest rates is at odds with the stellar UK economic data of the past few weeks. Should the economy continue to perform so well, Carney will find it difficult to continue to talk down the expectations of UK growth, and along with it the Pound. The Bank of England’s aim to keep long-term borrowing rates as low as possible may have to be tempered by the realities of a strong UK recovery evidenced by August’s PMI figures.

City A.M.'s Shadow MPC voted to hold rates today, with one vote of eight supporting a rate hike: