Interest rates | Forward Guidance
Mark Carney The new Governor of the Bank of England said the Bank will not consider raising interest rates until unemployment has fallen to 7% or below, it must also be said that the 7% is not a point as which rates will rise, but a point at which they will be examined.
Current level of 4.8% - June
The last time rates were bellow 7% was back in 2007 - 2008, and is not predicted to fall to this level until 2016.
The purpose of this announcement is to 'deliver clarity' and give consumer confidence to spend, and Business the confidence to invest - all good creating jobs.
Whilst it is good that the bank has changed to deliver this announcement it must be taken with a hint of caution - has anything changed?
The Bank has also created some caveats, which if any of these situations arise then all bets are off!
- If Inflation looks likely to be above 2.5% over 18 months to 2 years this now stands at 1.7% as at March 2014.
- If Inflation looks like it could get out of control.
- The bank can reverse its position if it feels that the stance is no longer appropriate to maintain that stance.
So it could be said that these rules almost wipe out the point of making the statement about the Unemployment rates? We do not think so as the point is it is Guidance - 'Forward Guidance' is just that.
Interest rates are a double edged sword what is good for lenders on one have proves a hardship for savers, and pressure group Save or Savers has voices its concerns.
...Update
In a recent review it was found that the business sector has taken very well to the Banks decision on interest rate guidance, 57% of businesses that responded said that they were confident in the economy, and one in ten of those that were intending to undertake capitol expenditure had brought that expenditure forward.
With wages under control and inflation down below 2%, we dont think that the job rate will trigger the rise in interest rates, but keep an eye on the housing market which is running at a rate of growth that can bring cause for concern.
We must find new homes, but perhaps what is fueling this growth is the investment coming in from over seas, and the Governments 'Help to Buy scheme', we would not be surprised to see measures to slow down the housing market.
With the jobless figure set to fall below the 7% level, the back has indicated no interest rate rises for a year.
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