INTEREST rates will not rise any time soon, Bank of England policymakers have insisted, despite this week’s news of a sharp fall in unemployment.
Governor Mark Carney said last night that there was no immediate need to push up rates, and that decisions over the Bank’s key unemployment threshold were a matter for the entire nine-strong monetary policy committee (MPC).
His comments were his first since data released on Wednesday morning showed the UK unemployment rate had fallen to 7.1 per cent in the three months to November from 7.4 per cent the month before, putting it just a fraction above the 7 per cent threshold the central bank set in August for considering a rate rise.
Earlier yesterday, MPC member Paul Fisher said the Bank was “still some way off” the point at which it would consider hiking rates from their current historic low of just 0.5 per cent.
The Bank would look at offering further forward guidance when unemployment reached 7 per cent, he added. Fisher’s comments, in a speech in London, echoed those of fellow policymaker Ian McCafferty in Nottingham on Wednesday night.
Fisher, pictured, said the Bank needed to avoid choking off economic recovery by pushing up borrowing costs too quickly, noting that the recent return of inflation to its 2 per cent target, and lower price pressures, gave it scope to wait and see.
Although recent economic growth has been strong and unemployment had dropped “unusually precipitously”, Fisher argued that the outlook for growth was less certain.
“My own judgment is that we are still some way off the point where it is appropriate to start raising [the] bank rate and that when it is time, it would be appropriate to do so only gradually,” Fisher told a gathering of pension fund managers.
He added: “We are very conscious that the headwinds have not gone away. Much of Europe and some other parts of the world continue to struggle for sustained growth, fiscal consolidation… is likely to continue for a while to come, and the financial sector still needs some rebuilding.”
Fisher also pointed to poor productivity rates and said output needed to rise faster than employment – rather than the opposite, which appeared to be happening currently.
“Output simply doesn’t appear to be growing fast enough to support the employment growth recorded as well as generate the rapidly rising real incomes one would like to see. Something has to give,” he said.
Howard Archer, chief UK economist at IHS Global Insight, said the Bank was “looking to take every opportunity to ram home the message that interest rates are unlikely to rise anytime soon”.
He added: “If the Bank really wants to solidify its message that interest rates are not going to rise anytime soon, it may seriously consider lowering the unemployment rate threshold from 7 per cent to 6.5 per cent.”