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Possible Earlier Than Anticipated Rate Increase

Written By On 24/09/2013

The Bank of England have hinted that the current interest rate of half a per cent may go up quicker than was initially forecasted only a few weeks ago.

At the beginning of August, Mark Carney said that the bank will only think about raising interest rates once the unemployment rate falls below the seven per cent mark. The BOE governor along with the majority of experts in the financial sector expected this to be at least three years away.

But now Ben Broadbent, one of the nine members who make up the Bank's Monetary Policy Committee commented that the unemployment rate may hit that barrier sooner than was previously expected.

He does not see it as a negative though as he addressed the London Business School. He said

We would not be displeased with such an outcome. What's not to like about lower unemployment?

Mr Broadbent said that the Bank is still keeping it's word and interest rates will still not change until unemployment falls just as Mark Carney announced. He warns that we cannot take anything for granted as there are no guarantees and that it could still 'go either way'.

Unemployment rose to a high of 8.4 per cent two years ago, but decreased to 7.7 per cent a couple of months back. However there are still two and a half million unemployed, which is still an increase of one million in comparison to pre-recession.

Figures reported for the last quarter appear to be better than expected amidst speculation that the private sector was registering a yearly five per cent growth rate.

The MPC official approaches this report with extreme caution as he feels the data may be somewhat optimistic as the pace may well slow down. He says caution is required as we may be over confident.