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Time: 0:0

BoE project 7pc unemployment by spring

12 February, 2014

By: Ryan Bembridge

category: Features

0

The Bank of England admitted in its February inflation report that unemployment had plummeted faster than anticipated and is expecting it to sink past the 7% threshold by spring.

CPI inflation remained at the Bank’s 2% target, which is said to indicate “solid economic growth”.

The report warned that growth was not yet accompanied by a pickup in productivity however, before reiterating that the base rate will remain “at low levels for some time to come”.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association, said: “The initial focus on the 7% unemployment threshold was never a trigger and always intended as a point to reassess.

“The unemployment rate is mainly relevant because of its influence on wages, and it should not surprise anyone that the Bank is monitoring 18 economic indicators overall. This is prudent policy and no more than is required to safeguard the recovery.

“Housing is one of the most interest rate sensitive sectors of the economy, and competitive rates have played a significant role so far in the relatively modest recovery without prompting irresponsible lending. There is a long way still to go – both in the mortgage market and in the wider economy – so the Governor is absolutely right to avoid the trap of considering the job done.”

Governor Mark Carney has stated that Forward Guidance needs to be revisited “as a result of exceptionally strong jobs growth”.

Housing transactions in 2013 Q4 were up more than 25% on a year earlier, accompanied by house price inflation.

The UK economy grew by 1.9% in 2013, the strongest annual growth rate for six years, driven by consumer spending.

Stephen Johnson, managing director of commercial Mortgages at Shawbrook Bank, said: “The Bank of England’s decision to keep interest rates low and to adopt a policy of gradual rate rises, will reassure lenders and borrowers alike.

“However, we shouldn’t let the continuing low interest rates lull us into a false sense of security. The current forward guidance is dependent on a range of external economic developments that can’t be controlled and things can change unexpectedly or develop faster than anticipated.”


Tags: Bank of England, inflation, lending, Mark Carney, unemployment

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