The base rate of the Bank of England will be held at its historic low of 0.5% it has been announced, following a meeting of its Monetary Policy Committee.
The Bank also identified their intention to retain the structure of their quantitative easing programme, despite calls for it to be changed due to the huge £375 million cost that comes along with it.
Eyes will now turn to events next Wednesday, when the Bank of England will release their latest inflation report that will clearly detail the direction of their future economic policy, and in particular where they intend to go with their forward guidance initiative.
Despite numerous calls for a rise in interest rates from economists and politicians alike, the Bank has remained hinged on its commitment to retaining interest rates low, and gave no official reason in their brief statement as to why they have come to their current decision.
The Monetary Policy Committee identified that it has “reached its decisions [about QE and interest rates] in the context of the monetary policy guidance announced alongside the publication of the August 2013 Inflation Report”.
Bank governor Mark Carney has experienced a period of intense pressure across the economic spectrum for failing to consider interest rate rises now that the countryís unemployment levels are on the eve of reaching 7%.
Back in August, Mr Carney attached the future of interest rates to the countryís employment rate, identifying that he would not consider any increase until that time that unemployment fell to 7%.
This had initially been forecasted to occur late in 2016, though a recent resurgence in the UK economy has meant that it decreased to a staging 7.1% in the latter stages of 2013.
And now it is believed that the Bank will wait till the complexion of worker wages improve before raising interest rates, though calls have grown for the governor to shed light on the new direction of his forward guidance policy in next weekís inflation report, now that it is no longer attached to unemployment.
Indeed, many have branded the initial carnation of the policy a failure, arguing that unemployment levels were the wrong indicator to attach interest rates to as they do not represent an upturn in the standards of living, merely the reality that more people have some form of work.
David Kern, chief economist at the British Chambers of Commerce, said:
“Linking forward guidance exclusively to unemployment has proved counter-productive.
“Focusing instead on a range of key indicators would increase its effectiveness, reinforce business confidence, and pour cold water on the cynicism that many City analysts have demonstrated.”
Jonathan Loynes of Capital Economics said: “The MPC’s decision to leave policy on hold today was almost certainly the last to be taken under the unemployment-focused forward guidance adopted just six months ago.
“But whatever replaces it, interest rates are likely to remain at very low levels for a long time yet.
“One option is simply to switch the focus to a different variable, such as wages growth or nominal GDP. But the unemployment rate experience has proved the folly of relying on a single indicator to represent the overall state of the economy.”
Mr Loynes suggestion that rates should be attached to worker wages or multiple indicators is a far more beneficial course of action to take, as it will ensure that those who are currently struggling have time to make the transition to more expensive credit facilities, and can tailor their personal financial situation in a manner that makes them better equipped to deal with higher costs when rates do eventually rise in the near future.
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