Why the Bank of England won’t even considers higher rates

https://www.theguardian.com/business/2017/feb/18/interest-rates-bank-of-england-wont-rise-soon-kristin-forbes

Savers lost one of their last hopes for an interest rate rise when Bank of England rate-setter Kristin Forbes announced she would be heading back to her home in Massachusetts in June.

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Forbes, a US academic who craves a return to the “economic normality” of 4%-5% base rates, has consistently called for an increase, though never actually voted for one. After the summer, it could be that only Ian McCafferty is still inclined to raise rates among the Bank’s nine monetary policy committee members.

Mortgage-payers, on the other hand, will be throwing their hats in the air. And why not when the departure of Forbes, and the economic realities that always prevented her acting on instinct, means interest rates are going to stay low this year, next year and most likely for the rest of the decade?

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This prediction is not some finger-in-the-air exercise allied to Brexit gloomery, but an assessment of Britain’s ingrained economic weakness, something Forbes understood and railed against.

This fragility may not be obvious from the most recent economic figures. These show the UK outperformed the rest of the developed world last year: employment is near record highs and unemployment at an 11-year low.

The concern – and anyone can see it in the Bank of England’s own reports – lies beneath the veneer of impressive data Philip Hammond understandably flashes around to justify his steady-as-she-goes approach. That picture of boom-boom Britain is not entirely an illusion, but the figures don’t really add up.

Firstly, wage rises are stuck in first gear. The Bank of England expects pay packets to rise in response to increasing inflation over the next year. Yet the agents it employs around the country talked to 340 businesses and were told those employers planned to scale down increases from 2.7% to 2.2%.

Several reasons were put forward for the reduction, most of them relating to increased labour costs from the new apprenticeship levy, due to take effect in April at a cost of £3bn to businesses, and the rollout of the Nest occupational pension to small employers. The theory here is that while labour costs are rising, there is less money available to boost wages.


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About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of CurrencyNewsTrading.com, a site dedicated to fundamental analysis and news trading.

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