|09-10-2014, 06:18 PM||#1|
Carney validates spring hike bets as economy recovers
Bank of England Mark Carney supported expectations of an interest rate increase from an all-time low in the spring next year as the economic recovery continues to accelerate.
In a speech to the Trades Union Congress (TUC) in Liverpool, Carney has announced his clearest statement yet on the timing for probably increasing the benchmark interest rate, where he signaled the bank will likely meet its inflation and jobs goals if it starts to raise the rates from a record in the first quarter of 2015 -- when policymakers will have enough evidence of a rebound in wage growth.
Carney told union members that British workers had played a key role in ensuring the economic recovery had been strong enough to allow the central bank to contemplate a return to more normal monetary policy settings.
The labor markets and wages are still the main concerns for Carney and his colleagues, who apparently need more time to gauge a better-than-expected economic recovery, and especially the pay gains to pre-crisis levels.
On Thursday, the BoE kept interest rates on hold as Britain`s economy continued to thrive, but risks to the recovery both at home and abroad remained.
Markets have discounted a possibly earlier-than-expected rate hike over the past few months with the UK recovery still an even keel and inflation largely under control. But uncertainty over the bank`s next move has risen amid lack of wage growth.
After three years of a total consensus over keeping the benchmark interest rates at 0.50%, a fresh split between policymakers was finally evident last month.
Last month, two policymakers at the Bank`s MPC sought to hike benchmark interest rate by 25 basis points, according to the August meeting minutes. The two dissenters were Ian McCafferty and Martin Weale. However, the majority of the MPC has pressed on weak wage growth and merits delaying rate hikes.
UK economy expanded at a slightly faster annual rate in the second quarter than initially thought, boosted by a better performance from the construction sector.
The preliminary GDP reading remained unrevised at 0.8 percent, confirming that the economy fully recovered the output lost during the financial crisis. Annual GDP has also been revised upwards to 3.2 percent - its fastest pace since the end of 2007.
The bank slashed its growth forecasts to 3.25%from 3.50% citing key challenges represented in weak exports and the pound’s strength, in addition to the geopolitical tensions. The BOE also lowered its wage growth forecast to 1.25 percent this year, compared with previous forecasts of 2.5 percent.
The UK is poised to be the first of the major developed economies to experience tighter monetary policy in the post-crisis era.
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