The Bank of England’s governor, Mark Carney, has stood fast on interest rates, but when exactly the bank will begin to increase rates remains uncertain.
Delivering the Bank’s quarterly Inflation Report this morning (August 13 2014), Mr Carney continued to keep his cards close to his chest, repeating to journalists the familiar message that interest rates will rise “gradually”, “as the economy improves”, and “to a limited extent”.
As to when this will happen, Mr Carney said only that rates will rise “when the appropriate moment comes”.
Worryingly, Mr Carney commented that there is “tremendous uncertainty” regarding the amount of spare capacity (i.e. economic underperformance, caused by factors such as businesses investing in less new staff, stock and technology) in the UK’s economy. Because spare capacity is considered a key factor in the Bank’s forward guidance regarding interest rates, such uncertainty indicates that the Bank is similarly unsure of when rates should increase.
Though the Bank has halved its wage growth forecast for 2014, it has increased its predictions for economic growth in 2014 and 2015. Though strong economic growth could prompt an increase in borrowing costs before the end of the year, lacklustre wage growth and “geopolitical dangers” could defer the eventual rise of interest rates until 2015.