Bank of England in no rush to raise rates

Bank of England

Bank of England

The UK unemployment rate has dropped to 7.1%, close to the point at which the Bank of England (BoE) has said it will consider raising interest rates.

Data released by the Office for National Statistics shows that the number of people out of work fell by 167,000, to 2.32 million, in the three months to November.

The BoE said it would consider increasing the base rate, from its current historic low of 0.5%, when unemployment hit 7%.

But the latest minutes from this month’s meeting of the Bank of England’s Monetary Policy Committee (MPC) indicate that the BoE is in no rush to raise rates.

Given that inflation returned to the 2% target rate last month, and that “cost pressures were subdued… members therefore saw no immediate need to raise the Bank rate even if the 7% unemployment threshold were to be reached in the near future”, the notes said.

The MPC also said “it was likely that the headwinds to growth associated with the aftermath of the financial crisis would persist for some time yet”, reinforcing the fact it is in no rush to raise rates.

Mark Carney, the Governor of the Bank of England, originally stated that the BoE anticipated that unemployment would fall below 7% around autumn of 2015, but it obviously could happen much sooner.

As I stated in my 2013 Economic Round Up, any investment decisions that were based upon a lengthy period of low interest rates should be reviewed. Young Group would advise against over-gearing and taking on excessive debt without considering a contingency for when rates do begin to climb.

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