Interest rates in the UK are unlikely to rise in 2014

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Mark Carney
Interest Rates In The Uk Are Unlikely To Rise In 2014
Mark Carney wants to see unemployment hit 7% before interest rates rise
Mark Carney wants to see unemployment hit 7% before interest rates rise

Interest rates in the UK are unlikely to rise this year, according to a snapshot of views of the UK’s top economists from the BBC.

An overwhelming majority, 93% of the 28 economists polled, think rates will still be 0.5% at the end of 2014, with more than half predicting the first rise in the second half of 2015.

More than 40% believe unemployment will fall to 7% in 2014, from 7.4% now.

Two-thirds also think wage increases will overtake inflation this year.

Some observers have suggested recent rises in house prices could force the Bank of England to raise rates sometime in 2014, but the majority of economists used by the Treasury and polled by the BBC rejected this view.

Almost 80% think rates will begin to rise in 2015, with 15% saying they will not increase until 2016. Only 7% of those polled think rates will rise in 2014.

The unemployment rate of 7% is significant because this is the level the Bank has said needs to be breached before it considers raising interest rates.

The snapshot suggests there is less certainty in the City about unemployment levels than there is about interest rates.

Although more than 40% think the jobless rate will hit 7% this year, exactly half think that will not be until 2015. Just 8% think it will not be until 2016.

Three respondents actually believe rates will rise before unemployment falls to 7%, which would mean the Bank abandoning its forward guidance on interest rates.

But some economists warn about getting too fixated on the 7% unemployment rate. Kate Barker, a former member of the Monetary Policy Committee, says unemployment could fall and wages could rise, without raising concern over inflation.

“The real question for the economy this year is not just about interest rates. It’s actually about what is going to happen to productivity, if we see productivity start to recover we could see wages pick up quite a bit without any damage to inflation – so there are more things to look at other than employment,” she said.

Eurozone crisis

A major concern for many in the UK during the economic downturn is a fall in living standards as inflation outstrips pay rises, but two-thirds of the economists think wages will start to rise faster than inflation at some point this year.

The remaining one-third think this will not happen until 2015.

Finally, the economists were asked about their views on the eurozone crisis, which has hit economies including Greece, Portugal and the Republic of Ireland particularly hard in recent years.

Alan Clarke from Scotiabank told the BBC the worst of the eurozone crisis was over but it was “too soon to relax”

Half think the crisis is not yet over, and of those who think that it is, many believe it could easily flare up again.

One-third of the economists polled think the eurozone economy will grow by more than 1% this year, while two-thirds think it will grow by less than 1%.

Almost 20% think growth will be as low as 0.5% or less.

Alan Clarke is the UK and eurozone economist at Scotiabank and took part in the survey. He said: “I think we’re seeing the periphery economies, Italy and Spain starting to move in the right direction. They’re not booming but at least they are not shrinking as much as they were.

“But you still have the problem child of France in Europe at the moment. Its survey indicators are more downbeat and it may struggle to grow in the year end period.”

Source BBC

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