Bank of England Urged to Defer Interest Rate Hike by Business Chiefs
The business houses of Britain are requesting the Bank of England to let the interest rates be untouched “well into 2016”, in order to soften the effects on the economy in the prevailing global financial crisis. The request has come right before the expected announcements of the policy meeting held in September.
The British Chamber of Commerce has speculated growth in GDP in its latest publication of quarterly economic forecast but has also cautioned that Bank’s nine-member monetary policy committee (MPC) may choke it.
David Kern, chief economist of business bodies has speculated the GDP growth for this year to be 2.6% and for 2016 at 2.7 percent the latter being up from the previous forecast of 2.3% and the former from 2.6%. This is turn will place the UK as one of the fastest-growing economies among major players but only if MPC doesn’t strangle the prospects with its policies.
“Global uncertainty – including the current situation in China, weakness in the eurozone, and the widely expected rise in US interest rates – could trigger further bumps in the road. Factors outside our own control reinforce the case for the Bank of England to keep interest rates on hold until well into 2016.”
The MPC is due to make its monthly rate decision announcement on Thursday and City experts will grab hold of any indication of stalling the increment of interest rates due to Chinese economic turmoil.
In spite of the global market crisis speculated due to uncertainties of the collapse of the Chinese economy, Mark, Carney, governor of the Bank, recapped that by “the turn of the year” the increment in rate could possibly become inevitable.
During the August meeting of the MPC committee only one out of nine members, Ian McCafferty the ex-economist from CBI voted in favor of an immediate increase in rate, and as per the Quarterly Inflation Report, the inflation is also speculated to dip below zero from 0.1 % in July in the months ahead.
The decision of the Bank regarding interest rate is expected to be announced on Thursday and will be declared along with the publication of minutes of the meetings as per the commitment of the Bank to maintain transparency.
Analysts are waiting eagerly to get their hands on the minutes to decipher the effect on the nerves of policymaker regarding Chinese stock market chaos and the loss of 6% of the value of FTSE100 in the month of August.
When the global economy slumped in the year 2009 the interest rates were cut down to a record low level of 0.5% only, but since now the economy has been growing positively, Carney has been hinting at the rise in borrowing costs.
However, the recent official statistics from Britain’s labor market show that the rate of unemployment has been higher than three months prior to April to June and indicating that the recruitment boom has started to diminish.
As per the analysis of Martin Beck, from oxford Economics consultancy, he expects the rise in the rate to be deferred due to uncertainties surrounding the global economy coupled with the recent potency of Sterling, as it could possibly dent the country’s export performance.
“Along with August’s dovish minutes, the enduring strength of sterling and the merits of waiting until the US Federal Reserve has hiked rates (something we now expect to occur in December), recent developments all point to the first post-financial rise in UK interest rates coming later than previously expected. We have pushed our call back from Q1 2016 to Q2”.
Out of nine members of the MPC committee, eight are veterans and the lone new recruit Jan Vlieghe, a former hedge fund economist, might just stick to consensus in his early outing.