UK Interest Rate Policy…the next 3-5 years…

On Wed 7th August, the Bank of England made clear, UK Interest Rate Policy.

The Bank of England governor Mark Carney has said the Bank will not consider raising interest rates until the jobless rate has fallen to 7% or below.

In the Inflation Report, published on the 7th August.

[http://www.bankofengland.co.uk/publications/Pages/inflationreport/2013/ir1303.aspx]

Some important comments from Mark Carney.

While job growth has been a relative positive in recent years, unemployment is still high.
There are one million more people unemployed today than before the financial crisis; and
many who have jobs would like to work more than they currently can.”

In practice, that means the MPC intends not to raise Bank Rate above its current level of
0.5% at least until the Labour Force Survey headline measure of unemployment has fallen to
a threshold of 7%. While the unemployment rate remains above 7%, the MPC stands ready
to undertake further asset purchases if further stimulus is warranted. But until the
unemployment threshold is reached the MPC intends not to reduce the stock of asset
purchases from the current £375 billion.”

So looking at the comments and facts, with the UK unemployment rate currently standing at 7.8%, the UK base rate will remain at the historic low of 0.5%, great news for people on fixed rate mortgages but a crushing blow for savers. The Bank of England is determined to fight unemployment, buy keeping the cost of capital ultra-low, in the hope to create jobs, but giving certainty to the market and thus creating investment.

In all likelihood, rates are now to be fixed for the next 3-5 years at least.

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