The Bank of England has kept interest rates at a record low of 0.5% since March 2009 and markets are on tenterhooks about when they will be hiked.
But it looks like it is going to be a big surprise when the central bank finally increases interest rates as the BoE’s deputy governor Ben Broadbent just revealed that it will not pre-announce a date for a rise.
“We [the MPC] are responding to things that are essentially … unpredictable,” said Broadbent this morning on BBC Radio 5’s “Wake Up Money” programme.
“And that means that it would not just be impossible, it would be foolish to pre-announce some fixed date of interest rate changes.”
The BoE has not hiked rates in over six years and it looks like it will be a while until rates rise again. On Thursday, only one member of the Monetary Policy Committee, a BoE panel which determines the setting of rates, voted to increase interest rates to 0.75%. The remaining eight members of the MPC voted to hold the BoE’s benchmark interest rate at 0.5%.
Originally, economists, including the former MPC member Andrew Sentance, forecasted that two or three members of the committee” would vote for a rate hike.
Last month, Bank of England governor Mark Carney revealed that the BoE is looking to raise interest rates “at the turn of this year.”
“Short term interest rates have averaged around 4.5% since around the Bank’s inception three centuries ago,” said Carney in a speech on July 16.
“It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”
However, Broadbent said this morning to the BBC that he saw “no urgency” in raising rates.
“The economy clearly is recovering, but we had the most almighty financial crisis and there is still a bit of spare capacity left,” said Broadbent.
“There is not that much inflationary pressure at the moment, [although] we expect that to build over time.”
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