The UK is in a sustained recovery and faces no major inflation risks, according to the Bank of England’s Monetary Policy Committee (MPC).
Minutes from the committee’s November monthly meeting showed that all nine committee members voted to leave interest rates at 0.5%.
Bank of England governor Mark Carney has previously stated that the Bank will not raise rates until unemployment falls below 7%. The minutes from this month’s meeting of the Monetary Policy Committee show that they will be in no rush to raise rates even then, with the Bank stating that “There could be a case for not raising Bank Rate immediately when the 7% unemployment threshold was reached.” Unemployment currently stands at 7.6%, according to the Office for National Statistics (ONS).
The Bank added that there were still uncertainties regarding the “durability” of the recovery, pointing out that there were few signs that expectations over inflation were feeding into wage increases.
The Bank of England said that it expects to see growth of 0.9% in the fourth quarter, alongside signs of improvement from business surveys and the property market. However, they also said that household spending is still squeezed, and the UK could potentially be vulnerable to instability in the Eurozone:
“"The UK economy remained vulnerable to disorderly adjustment in the euro area and some emerging economies.”
David Kern, chief economist at the British Chamber of Commerce, responded to the news:
“Businesses will be pleased with the unanimous decision to keep rates on hold, as well as the reiteration that reaching the 7% unemployment threshold will not automatically trigger a rate increase.”
He added that “the MPC's forecast for unemployment is optimistic, and while we expect growth to strengthen over the next few years, it is unlikely to be as rapid as the MPC expects.”
Jonathan Loynes from Capital Economics said the main message from this meeting appears to be the playing down of the importance of unemployment figures in determining when interest rates will rise:
“Provided inflation pressures stay subdued, as we expect, interest rates are going nowhere for a long time yet even if the economy continues to grow strongly.”