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News Analysis: BoE expected to raise interest rate in second half 2015: experts

English.news.cn   2014-02-13 07:17:43

LONDON, Feb. 12 (Xinhua) -- Although the Bank of England (BoE) has revised its forward guidance policy, scrapping its 7 percent unemployment target, the central bank will not raise the benchmark interest rate until the second half of 2015, said economists in London Wednesday.

During the press release of its quarterly Inflation Report, Mark Carney, the governor of BoE said the central bank would now be looking at wider range of indicators, including wages, labor participation, productivity and unemployment rate, as the policy targets.

He said the recovery is gaining momentum and better than expectation, but there was still "scope" for the economy to maintain the interest rate at record low of 0.5 percent, and the assets purchasing plan would not be scaled back until the base rate rising.

Following Federal Reserves, British central bank implemented the forward guidance policy last August, asserting to remain the ultra low interest rate target and 375 billion pounds (621.67 billion U.S. dollars) quantitative easing policy until unemployment rate hit the 7 percent threshold.

Peter Spencer, chief economic adviser to the EY ITEM Club, a London-based independent economic think tank, commented that "Today's update to forward guidance was inevitable, with the recent unemployment having forced Mark Carney's hand."

BoE has also raised its economic growth forecast for 2014 to 3.4 percent, revised from 2.8 percent it made previously. In medium term, however, unemployment rate in Britain will sink to 6-6.5 percent, down from 7.1 percent in the three months to last November.

"Carney has insisted that rates will remain low for some time, which should put the bed the uncertainty surrounding the immediate path of monetary policy. But the outlook for the next couple of years is less certain and there will be an onus on BoE to steer the markets through greater levels of communication, in particular more interviews and speeches," said Spencer in his email comment.

Spencer also said BoE's new guidance for the pace of tightening do not alter their view that the first rate rise will come in the third quarter of 2015, because the central bank wants to sustained pickup in real wages and a more balanced recovery.

Jonathan Loynes, Chief European Economist at Capital Economist, also told Xinhua that the basic message that BoE is in no hurry to tighten monetary policy, and will tread very cautiously when it does.

The central bank will seek to use policy to absorb the economy's spare capacity, and there is scope to use up spare capacity further before raising rates, said Loynes.

Even "when BoE raises rates, it will do so only gradually. Any rises in rates will be limited, and that the shock of asset purchases will remain unchanged until rates rise," added Loynes.

The London-based economic research company remains its forecast on the first rate hike happening late next year.

Editor: Yang Lina
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