A key member of the Bank of Englandís Monetary Policy Committee has dropped the biggest hint yet that interest rates will begin to rise in the spring of 2015.
Martin Weale, part of the nine-strong MPC which are in charge of forming the future policy of the BOE, has identified that rates will likely rise following the completion of the 2015 General Election, adding that they will probably climb up at a steady pace rather than soar back to their pre-recession value.
Mr Weale said: “I think it is very helpful if we try and explain that the most likely path for interest rates is that the first rise will come perhaps in the spring of next year. And then the path is likely to be relatively gradual.”
The Bank of England first decreased the base rate of the Bank of England to its current historic low value of 0.5% back in 2009, and has since remained hinged on their stance of retaining them at this level until they believe that the country is heading in the direction of a ëbalancedí recovery.
Earlier this month, the Bank announced a change in their forward guidance policy which saw the future of interest rates be detached from the unemployment rate in the country. Instead, the BOE identified that a multitude of different parameters, such as wages, living costs and labour productivity, would be monitored closely in the upcoming months, so that it can be clearly ascertained when the people of Britain will be able to cope the best with the new financial
demands of high borrowing costs.
And Mr Weale refused to ërule out the need for a rate rise coming earlier than 2015í, identifying that if the complexion of worker wages was to pick up substantially in the latter stages of this year, that the Bank could even choose to increase them at the end of this year.
Interest rates were initially expected to be raised far later down the line than they are now forecasted to, with the original carnation of forward guidance launched last August, attaching their future to when unemployment fell below 7% in the country.
This was originally predicted to happen during the latter stages of 2016, though the staggering economic performance of the UK, fuelled by consumer spending and the boom in the property market, saw unemployment fall to just 7.2% by the end of 2013.
And Mr Weale, who was one of the members of the committee who voted against the Bank pursuing their forward guidance policy, highlighted that he would have opposed it even more vigorously had he been aware of how erroneous their forecasts for unemployment were.
“Had I thought that there was a substantial probability that because of the movement of unemployment that forward guidance would have a life of less than a year then I wouldn’t have been enthusiastic,” he said.
He also expressed his distinct concern about the UKís housing market at present, citing that the artificial inflation of property prices at present could be hugely problematic later on down the line.
“I do worry that house prices are very elevated,” he said.
“It’s true that in inflation adjusted terms they are probably still lower than they were in 2007 but that doesn’t tell you very much because no-one thought that the level of house prices in 2007 was a source of comfort.”
Mr Weale also expressed his apprehension about the balance of the UKís economy at present, and conceded that the Bankís quantitative easing programme may have had an adverse affect on the current shape of the countryís recovery.
He said: “Many people will look at levels of inequality and the way they’ve changed and wonder whether that is a sign of a well-functioning economy, but in voting for quantitative easing what I’ve been doing is the job I’m paid to do which is to deliver the inflation target.”