The Bank of England has opted to retain the UKís base interest rate at its historic low of 0.5% for the upcoming month, taking it to 65 successive months of ultra-low borrowing costs.
Members of the Bankís Monetary Policy Committee also decided to hold the value of their stimulus based quantitative easing initiative at £375, in a move that is most likely directly related to the ongoing cost-living difficulties that many across the country continue to struggle from.
The news marks the latest chapter in the ongoing saga surrounding interest rate hikes, with the nationís economists seemingly divided over the best time to implement a rise from 0.5%.
Economists in favour of rate hikes sooner rather than later have argued that they must be raised now in order to prevent people from trapping themselves in a spiral of debt that they took out due to low borrowing costs. Taking the long-term perspective on proceedings, economists who have advocated rises this year have identified that any extension of the current period of low borrowing costs will mean that more people acquire irresponsible liabilities, and will then be forced to either downsize their lifestyle, use an insolvency solution or take out more debt in order to make the higher loan repayments each month after rates rise.
Conversely, those who have championed waiting to raise rates have argued that the collective personal finances of householdís in the UK is not yet strong enough to cope with a rise in interest rates, and have pointed to the ongoing reality of inflation outstripping wage growth as clear evidence that factors need to be addressed for policymakers raise the borrowing costs for those with outstanding debt.
However, despite speculation that the Bank of England has been internally divided over the decision about when to raise rates, the minutes from each monthís Monetary Policy Committee meeting since July 2011 have clearly indicated that all members of the have voted unanimously to retain them at 0.5%.
Previously, Bank governor Mark Carney suggested that the first rises would take place during the latter stages of 2014, but was quick to affirm that any further hikes would be done in a reactionary and gradual manner. The minutes from this monthís Monetary Policy Committee conference will not be made publically available until the 20th of August, and the eyes of the financial world will be watching these on this day in order to try and infer which position they are now leaning towards in regards to rate hikes.
Chris Williamson, chief economist at Markit, has forecasted “the minutes to show that opinion is moving closer towards raising rates”.
“It’s all about when wage growth starts to pick up: if pay starts to rise in coming months, the first rate hike looks likely in November. Otherwise, any tightening of policy can wait until next year,” he said.
However, David Kern, chief economist at the British Chambers of Commerce, has argued that a premature rise in interest rates could undermine the nationís economic recovery and called for policymakers to wait until that time that wage growth in the UK is addressed sufficiently.
“The current calls for higher rates, particularly while wage pressures are still weak, are unjustified,” Mr Kern said.
He added: “The rise in sterling over the past year has put pressure on UK exporters, and is equivalent to a tightening in monetary policy. This strengthens the case against premature interest rate rises.”
The timing of the first rate hikes will most likely be determined in accordance with the performance and output levels of the various major sectors in the country, as strong signals in these areas will implicitly indicate that employers in the country are in a better position to begin paying their staff higher wages; a natural counterbalance to the inflation rate in the UK currently outstripping wage growth.
The latest economic surveys surrounding Britain service sector have been entirely positive, and whilst manufacturing growth has fallen recently, there are nevertheless good signs that wages are finally set to pick up and grow faster than inflation.