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Bank of England committed to keeping rates low

paulajohn
Written By:
paulajohn
Posted:
Updated:
24/10/2013

Leading economists at the Bank of England have confirmed their intention to keep Base Rate at 0.5%.

The minutes of last month’s meeting of the members of the Bank’s Monetary Policy Committee (MPC), which is responsible for setting interest rates, revealed that they voted unanimously to hold Bank Base Rate at the record low of 0.5% where it has been since March 2009.

The economists on the MPC said that housing market activity has revived thanks to falling mortgage rates, and this revival could help support an increase in households’ economic activity.

Berenberg Bank UK economist Rob Wood said:

“The underlying message is they are focused on supporting the economy and not worried about inflation being a little above target.

“They are more likely to raise rates a little too late than a little too early.”

House prices were likely to increase steeply, he predicted, with prices rising by as much as 10% in 2014.

Despite the Bank’s publication of forward guidance in August 2013 suggesting it would not raise the Bank rate for several years, speculation about an earlier rise in interest rates has persisted.

The unemployment rate was also falling at a faster pace than previously anticipated by MPC members.

However, the minutes argued the use of monetary stimulus along with a more certain outlook had been one of the main drivers of the recovery.

MPC members agreed unanimously that none of the conditions for raising the Bank rate had been met:

“The Committee’s forward guidance therefore remained in place and no MPC member thought it appropriate to tighten the stance of monetary policy at the current juncture.”

On Tuesday, MPC member Charlie Bean sought to quell fears about another bubble, saying that a house price boom was still “some way off”.

The previous day, fellow MPC member Ben Broadbent suggested interest rates could rise “a fair bit” before borrowers struggled. However, a premature rise could choke the recovery, he said.