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BoE in no rush to raise rates yet

Wednesday, May 14, 2014 - 02:09

May 14 - As new figures show Britain's economy continues to grow faster than many other western countries, Ivor Bennett looks at the dilemma facing the Bank of England over interest rates.

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Finding something to smile about isn't hard for Mark Carney these days. With GDP set to grow 3.4 percent this year, Britain is the fastest growing economy in the G7. And the Bank of England governor says there's more to come, upping growth forecasts for 2015 from 2.7 percent to 2.9. SOUNDBITE (English) MARK CARNEY, GOVERNOR, BANK OF ENGLAND, SAYING: "Having increased by more than 3 percent over the past year, output is now close to regaining its pre-crisis level . 700,000 more people are in work, and inflation is below but close to the 2 percent target. In short, the economy has started to head back to normal." But it's not without its weak spot. Slack in the labour market is estimated to be as much 1.5 percent of GDP. A reason why interest rates won't be rising any time soon. SOUNDBITE (English) MARK CARNEY, GOVERNOR, BANK OF ENGLAND, SAYING: "When bank rate does begin to rise, increases are expected to be gradual and limited, meaning that the bank rate may stay at historically low levels for some time." Strong recent data had fuelled expectation of a rate rise by the end of the year. but markets were left disappointed. Sterling dropping to a one month low after the announcement. Soaring house prices have prompted fears of another property bubble. But the Bank insists a rate hike is the last line of defence. Brewin Dolphin's Guy Foster agrees. SOUNDBITE (English) GUY FOSTER, HEAD OF RESEARCH, BREWIN DOLPHIN, SAYING: "There's a lot of capital particularly flooding into London and higher rates are only going to intensify that. So the case for a rate increase is not to do with CPI, it's to do with house prices and house prices growth is concentrated in the London and the south east so anything that sucks more capital into London and the south east is likely to intensify problems and those kind of imbalances." Today's fall aside, bank hopes the strength of sterling will keep inflation low. The recent gains enough to cancel out any upward pressure from the fall in unemployment. The bank forecasts inflation will stay below 2 percent for the next two years.

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BoE in no rush to raise rates yet

Wednesday, May 14, 2014 - 02:09