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Bank of England damps down talk of a rate rise
18.06.09
The Bank of England made it clear today that interest rates are unlikely to move upwards any time soon.
With growing talk that the recession is over, economists have begun to speculate about when rates will be moved upwards from the present historic low of 0.5%.
Banks are already pricing mortgages higher in anticipation of a shift in money-market conditions.
But the June minutes from the meeting of the bank's monetary policy committee, which sets rates, shows that members remain concerned about the parlous state of the recovery.
Capital Economics said in a note to clients: "June's MPC minutes struck a slightly more upbeat tone than the recent speeches by individual members. However, there was nothing to suggest that the committee has significantly changed its previous, and generally cautious, view about the growth and inflation outlook."
Howard Archer of IHS Global Insight said: "The minutes indicate that, despite the recently improved economic data, the Bank of England is in absolutely no hurry to raise interest rates."
The Treasury today opened what it called a "short inquiry" into the mortgage sector. It is concerned that banks are being tight with lending, potentially derailing signs of recovery in the housing market.
Unemployment numbers out this morning, although much better than forecast, hardly give reason to conclude that the downturn is over.
The number of jobless in the UK rose by 232,000 to 2.26 million people in the three months to April, taking the rate of unemployment to 7.2%. That's the highest level since July 1997.
"It's better than expected. It is probably still too soon to conclude that we have reached any turning point, but it is moderately encouraging," said Ross Walker, the UK economist at RBS Financial Markets.
John Cridland, CBI deputy director-general, said: "The numbers of jobless are continuing to rise and we're clearly not through the worst yet.
"Sadly, the CBI expects these figures to continue to rise and peak at three million in the spring of 2010."
The key stats
Rise in jobless numbers: 232,000 to 2.26 million in the three months to April
Rate of unemployment: 7.2% from 6.3% in December
Rise in people claiming unemployment benefit: 39,000 in May, less than the 60,000 that had been forecast.
Rate of unemployment claims: 4.8%, highest since November 1997.
Average earnings: up 0.8% in the three months to April
Number of people in work: 29.11 million, a fall of 271,000
Reader views (6)
The Housing market will suffer a second tier crash as rates rise causing further misery for homeowners. Over 1m borrowers are coming off Fixed rates and their cheap tracker and discounts rate at the end of 2009. We are already experiencing calls from concerned clients desperate to secure a good 5yr Fix - but they all got pulled last week. Banks 1 - Consumer - 0
- Mortgage Broker N3, London, England
Great, so us cash rich savers continue to pay the price for the leveraged buy to let brigade.
- Investment Banker, London
When they go up people taking on large morgages on these low rates will soon find themselves in trouble again as unemployment and repayments rise.
Do people ever learn ?
- Bernard Parke, GUILDFORD
The Bank of England is content to rob savers of a market interest rate. The difference between the RPI and CPI shows how the Bank is manipulating the market on behalf of the UK Government. These unrealistically low interests are creating tomorrows debt crisis.
- Brian Edmonds, Farnham UK
Of course they won't be going up yet. The government decides what the bank rate will be and the bank of England rubber stamps it. The government don't want interest rates to go up before an election
- Peter, Hertford
Oh, Oh? That means they will be.
- Albert Hall, hove england
