No change: the Bank of England is to keep interest rates at 0.5 per cent, it has said this morning. The Bank's Monetary Policy Committee says it will keep the scale of quantitative easing unchanged too, at £375bn. It "was always a stone-dead certainty", says IHS Global Insight's Howard Archer, that policy would remain the same.
The Bank's forward guidance plan, laid out in August, suggested there would be no hike in interest rates until mid-2016 at the earliest, when it predicts that unemployment will drop below its seven per cent threshold.
Archer, looking towards next week's Quarterly Inflation Report, says "it seems highly likely that it will see a raising of the Bank of England’s growth forecasts and a lowering of its unemployment forecasts, which will open the door to the bank starting to raise interest rates before mid-2016." But he points out that, "despite the ongoing encouraging news on the economy, any change in interest rates still looks a long way off, whether or not unemployment ends up falling more rapidly than the Bank of England had expected in August."
IHS Global Insight favours a gradual rise in interest rates, beginning in the latter months of 2015. This, it says, is based on the assumption "that UK economic growth will ease back from current robust levels but will remain decent with GDP growth coming in around 2.5 per cent in both 2014 and 2015." Any further quantitative easing, adds Archer, now looks highly improbable.