Employment hike may not spark rate rise, says MPC's Martin Weale

By Hugo Duncan

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Interest rates could remain at record lows even after unemployment falls below the threshold set by the Bank of England for when it will consider a hike, a senior official said yesterday.

The central bank has said it will not raise rates from the current level of 0.5 per cent until unemployment falls to 7 per cent or lower – something it now thinks could happen towards the end of next year rather than in 2016.

But Martin Weale, a member of the rate-setting Monetary Policy Committee, said ‘a rise is not automatic’ when the jobless rate hits the threshold.

Interest rate rise? It all depends what the economy looks like when unemployment falls to 7 per cent, said Martin Weale, a member of the rate-setting Monetary Policy Committee

Interest rate rise? It all depends what the economy looks like when unemployment falls to 7 per cent, said Martin Weale, a member of the rate-setting Monetary Policy Committee

‘It is perfectly possible that, as time moves on, the right thing to do will be to keep Bank Rate at 0.5 per cent even when unemployment has dropped below our 7 per cent threshold,’ he said.

The respected economist added ‘it would not be surprising if the economy grew faster than we have forecast’ and that the unemployment threshold could even be lowered.

 

‘It all depends what the economy looks like when we get to 7 per cent,’ said Weale.

He also warned against the ‘risk of holding rates too low for too long’. The comments came 48 hours after the Bank raised its growth forecasts for the UK economy, lowered the outlook for inflation, with unemployment also falling faster than previously expected.

Speaking at the inflation report on Wednesday, governor Mark Carney painted a rosy picture of the outlook for the UK economy.

‘For the first time in a long time, you don’t have to be an optimist to see the glass as half full,’ he said. ‘The recovery has finally taken hold.’

It fuelled speculation that interest rates could rise in late 2014 or early 2015 rather than in 2016 as the Bank appeared to suggest when it outlined its policy of ‘forward guidance’ in August.

The comments below have not been moderated.

Can't anyone with a more vivid imagination make up a better conspiracy theory?

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Here we go. I've posted several times that there is no way the BoE is going to raise base rates. Even if unemployment hits 7%. And even when they eventually raise base rates, that will not be passed onto savers. Their intention is to wipe out anyone with any capital. So young people can borrow like it's going out of fashion to spend on shoes, clothes, meals out, holidays. And mortgages. Yet still they bleat.

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Is "they" the Bilder Cheese Burgers? Or the space lizards? Have you considered seeing a shrink?

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They move the goalposts again (and they will carry on doing it)

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An interest rate rise would also strengthen the Pound and that has to avoided at all costs while in the early days of 'the recovery'. Sod the sensible savers - find another way to make money.

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Go and boil your head you selfish borrower

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Why did Carney start with this 'forward guidance' rubbish if the goalposts are going to be moved every time a target appears to be approaching. The BoE really is rubbish. They apparently can't see a housing bubble forming (for the 2nd time) but maybe that is because they are in their own City Bubble. I am not at all impressed so far with Carney - is anyone else?

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Some 'prudent savers' interpret MPC guidance as what they want to hear and not what was stated! The MPC guidance only added the unemployment rate to the inflation rate as being another factor to be taken into account before any consideration is given to increasing base rate ie the state of the whole UK economy will determine when and how fast interest rates will rise. Though the economy has moved from flat lining to growth causing a fall in unemployment, growth in terms of exports, business investment, productivity and general living standards is still relatively weak and could be easily knocked off course by any EU crisis/referendum. Many would still argue that the fall in unemployment is due to creation of low wage, part time and zero hour contracts which would explain why business investment is so weak, the lack of productivity growth and the pressure on house hold budgets! We have a long way to go before we get 'Sustainable Growth' and any material rise in interest rates!!!!!

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Zero hour contracts will be abolished i the autumn statement.....cert

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Who thinks there'll be a "rate rise" certainly not before the next Election there won't not with the insistence on appearing to bolster the banks' balance sheets by the fake pumping up further of house prices - who would DARE raise rates with that backdrop. If the Cons get safely elected THEN possibly if they get 5 years in power but surely them getting elected with things as they currently stand looks dubious - they've alienated many of their own voters.

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Nothing will spark a rate rise , Osborne and the Conservative coalition won't allow it.

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"The MPC has concluded that forward guidance is best implemented using an unemployment threshold of 7%. This is not to say that Bank Rate will automatically be increased when the unemployment threshold is reached. Moreover, it would be wrong to think of 7% as a target for unemployment. The rate of unemployment consistent with price stability - a rate that monetary policy can do little to affect - is likely to be lower than this. So 7% is merely a 'way station' at which the MPC would reassess the state of the economy, the progress of the nascent economic recovery, and, in that context, the appropriate stance of monetary policy." - What Carney actually said in the "forward guidance" statement. Maybe the DM "reported" it differently or some readers "interpreted" it differently!

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Carney never said that 7% unemployment would automatically trigger a rate rise. He said a rise would not be CONSIDERED until unemployment dropped to that level - and with added provisos to allow for the unforeseen.

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