The Monetary Policy Committee (MPC)
of the Bank of England (BOE) voted 9-0 to keep the bank rate at 0.5
percent, according to minutes released Wednesday, but many economists
still believe that interest rates may rise earlier than forecast by the
central bank.
The BOE said in its minutes that growth is
likely to be stronger and unemployment lower in the second half of 2013
than it predicted in August, when it announced its first ever forward
guidance policy.
That policy will see the bank rate remain
at the historic 0.5 percent low until unemployment hits 7 percent
(currently 7.7 percent), when a review of the rate will be triggered.
The policy was introduced under new
governor Mark Carney, and the better-than-expected performance of the
British economy is leading markets to expect a rate rise in late 2014 or
early 2015 rather than the early 2016 forecast by the BOE.
The British economy has struggled for
growth since recovering from the financial crisis, and it grew only 0.1
percent last year.
This year growth has been 0.4 percent Q1
and 0.7 percent Q2, both confounding the predictions of economists.
Figures due out on Friday for Q3 are
expected to show growth of 0.7 percent, annualised at 4 percent.
James Knightley, chief UK economist with
ING, said, "With the economy having created over a million jobs in
the past three years, the pool of available labor is starting to shrink,
which should eventually start to put upward pressure on wages."
He added, "Furthermore, with the
economy likely to have expanded close to 4 percent annualised in 3Q12 and
with lead indicators pointing to a decent start for the fourth quarter we
see the strength in the labor market continuing. As such we still feel
policy tightening could start in early 2015, much earlier than the 2016
date suggested by the BOE's current forecasts."
The MPC hinted that policy tightening might
begin sooner than it had indicated in its August Inflation Report, the
first of Governor Carney's term in charge.
Simon Hayes, chief UK economist with
Barclays Economics Research, said that in the August Inflation Report the
MPC had projected GDP growth of about 0.5 percent per quarter in the
second half of the year.
He said the BOE's latest estimate was
around 0.7 percent per quarter, or perhaps a little higher as, taken at
face value, the business surveys pointed to growth of about 1 percent per
quarter.
At the same time, the MPC had forecast the
Q3 unemployment rate to be 7.8 percent whereas the September outturn had
been 7.7 percent.
Hayes said, "The minutes stated that
'it now therefore seemed probable that unemployment would be lower, and
output growth faster, in the second half of 2013 than expected at the time
of the August Inflation Report'."
"We should therefore expect the MPC to
bring forward its guidance on the likely timing of the 7 percent
unemployment rate threshold being hit when it updates its projections in
November," Hayes added.
Source from Xinhua News |