Interest Rates Up? Not Likely, Todays Inflation Report Due
Do you think that interest rates are going to rise soon? Personally, I don’t think so. But the recent dramatic slide of unemployment rates in the UK has many analysts speculating that the Bank of England’s Mark Carney is ready to hint at this in an adjustment of forward guidance in his quarterly inflation report today.
Carney had previously stated that the Bank of England would not consider moving interest rates until the unemployment level hit at least 7%. Recently the dramatic slide in unemployment rates sees us just above that level at 7.1%, this has seen the pound push higher in recent days and yesterday had its biggest advance in two weeks. Speculators and the markets seem to be pricing in a softer stance on this policy.
As he’s mentioned many times recently, Carney doesn’t think the UK economy is strong enough just yet to cope with the tightening of monetary policy. This leads us to think the report today will be more focused on a change of the forward guidance criteria.
Business editor of the BBC News website, Robert Peston, has stated that he also does not expect the Bank of England to set a numerical target, and is also of the opinion that Carney will be announcing soft guidance rather than hard targets.
Peston said, “I expect him [Mr Carney] to say that he expects interest rates to remain at their current low levels for some considerable time. And to repeat that as and when they do rise, they will not return to the levels we took for granted as normal in the boom years. This form of soft forward guidance is certainly not the bold hard revolution of last summer’s announcement of a single statistical threshold for a rate change.” (Quote BBC News).
Analysts seem pretty sure it’s far more likely he will offer guidance on a range of other economic indicators such as wage growth etc. Personally I would be very surprised if any hard targets were set, UK economy is still in the early stages of recovery and growth. To start shifting interest rates again now could put a sharp and quick halt to that, even if unemployment rates fall below the 7% level I’d be surprised if any rise in interest rates is a move larger than a quarter of a percent. This would be used as a warning shot to remind people that debt doesn’t come cheap.
Mark Carney speaks at 10:30am (UK Time) today.
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.
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