Bank maintains base rate – but could a rise in 2014 be on the cards

Bank of England Money & Credit StatsThe Bank of Englands Monetary Policy Committee today voted to maintain the banks base rate at 0.5%.

This was widely expected after previous guidance from the bank and governor Mark Carneys forward guidance approach.

They also voted to maintain the £3.75 billion they have already made available via the bond-buying scheme known as quantitative easing (QE).

The Bank has also not provided any further guidance as to when they may raise interest rates. With speculation that the Bank may have to refine its threshold announced previously, this could have been on the cards.

The reason for this speculation is that previously back in August, governor Mark Carney said that unemployment would need to decline to 7% before any rise would even be considered.

However with an improved economy coming out of the back of 2013, this may actually happen much sooner than expected.

Previously the thought by the bank was that this threshold would not be reached until 2016, however many people expect the 7% threshold to be broken some time this year.

Implementing a rise in the banks base rate in 2014 was never on the cards and the City was not expecting to see any movement until mid-2015 at the earliest. Yet some economists believe that a rise in 2014 is possible:

“With unemployment currently falling sharply, and growth in 2013 now likely to have come in close to 2.0%, expectations are mounting that the Bank of England could very well start to raise interest rates in 2014,”

Dr Howard Archer, chief European and UK economist with IHS Global Insight

Even though the 7% threshold might be breached this year, Mark Carney has always stated that this was not a rate trigger and would not cause an automatic rate rise.

It is more likely that the Bank would use other tools available to it to potentially control mortgage lending, before it considers a rate rise.

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