Interest Rates Rise Not Predictable

In an interview with the BBC, the Bank of England’s deputy governor, Ben Broadbent said that pre-announcing the dates for an interest rise would be ‘foolish’.

Broadbent was keen to emphasise the comments from Mark Carney about the committee planning an interest early next year was misinterpreted and that the committee did not have a proposed time.

On Thursday, the Monetary Policy Committee (MPC) voted to keep the interest rate at the historic low rate of 0.5%.

The current rates have remained unchanged for 78 months. In his interview, the deputy governor said that the MPC were responding to events which, ultimately, were unpredictable. Therefore announcing when a change would be made would be futile as future events could require different responses.

He continued by saying that currently there was no reason to increase interest rates. The current rates have helped boost the housing market by keeping mortgage rates low, but penalised savers have seen minimal returns.

The recent fall in oil prices has delayed rising inflation and has reduced the likelihood of inflationary pressure rising in the next few months.

Interest rates often take time to feed through, so the policymakers will need to look ahead for when the wage growth picks up and inflation begins to grow again.

As it is not possible to predict exactly what will happen, the policymakers are being advised to prepare for the possibility of inflation growing and increasing the interest rates up to keep it in check.

The Consumer Price Index, used to measure inflation, fell to 0% in June, alongside the fall in crude oil prices; these events paired with the Greek crisis and falling Chinese stock prices, the global economy looked like it could be unstable. Despite this the forecasts for the UK economy look to remain steady.

The stable economy in the UK should mean the interest rates will start building. The drop in unemployment and rising productivity should mean that UK can plan for natural growth.

Broadbent concluded with a clear statement that Carney’s comments about the process of adjustments early next year would a misinterpretation and the committee would make adjustments when they saw fit.