Reposted from The Sunday Times
So, Carney is changing the unemployment benchmark from 7% to 6.5% or lower… why is that I wonder; could it be because the bank did not expect there to be a drop to 7% until 2016 …. after the election of course, because even the tories know that if the interest rate went up their psuedo economic recovery would be laid bare for all to see
MARK CARNEY is set to amend the Bank of England’s forward guidance in the coming months by changing the unemployment benchmark at which an interest rates rise will be considered.
In August, when setting out his forward guidance, the Bank governor said a rate increase would not be considered until unemployment fell to 7%. At the time, the Bank did not expect that to be until 2016.
But sharply falling unemployment means 7% could be achieved soon and City economists expect the Bank’s monetary policy committee to shift the “threshold” to 6.5%. This will allow the Bank to hold interest rates at 0.5% this year.
“Unemployment is falling like a stone so the threshold is likely to be shifted to 6.5%,” said Alan Clarke of Scotiabank.
Brian Hilliard of Société Générale said: “We think [the committee] will do so at the February inflation report and the threshold will be taken down to no higher than 6.5%. It could even be lower.”
Carney is keen to give the economic recovery time to gain strength. The service sector purchasing managers’ index, out tomorrow, is expected to have remained strong in December, matching the construction and manufacturing surveys.
An analysis by David Owen, an economist with Jefferies International, shows that business services such as accountancy, law and R&D have been driving the recovery with a growth rate of nearly 7% a year.
“High-value-added business services are growing, against the backdrop of a financial sector that continues to shrink,” he said.