Businesses optimistic as Bank of England rules out interest rate rise
Mark Carney, Governor of the Bank of England, has asserted that there will be no change to interest rates in the near future, despite previous expectations.
The guidance policy set out for interest rates indicated that an increase could be considered if unemployment rates fell to 7%. This level has very nearly been reached, despite predictions that it would not happen until 2016, prompting Mr Carney to speak out.
Historically the Bank has not commented on the direction of interest rates. Another numerical target has not been set; instead it has issued soft guidance on how and when future changes may take place. Mr Carney has said in past statements that the policy needed to evolve to include a broader range of factors on which to base potential changes.
As a result, the current Bank of England interest rate is likely to remain at 0.5% for the foreseeable future. Its part of the reason why were trying to provide as much clarity to business, Mr Carney said. The path of monetary policy is going to be calibrated very carefully to ensure that only when we see sustainable growth in jobs, in incomes and in spending, will we make adjustments.
Martin Weale, a policy maker for the Bank of Englands Monetary Policy Committee, recently commented that the most likely path would be an interest rate rise in the spring of 2015.
Meanwhile, numerous sources have shown there is increased faith in the economy, with business groups and think tanks all displaying higher levels of confidence and more determination to succeed.
In a survey of retail chairmen carried out by Headhunting organisation Korn Ferry, 73% of those questioned said they are optimistic about the UKs economic outlook. The survey of 39 high street retail bosses included Tesco, Sainsburys and Marks & Spencer. This reaction is notably different from the same survey last year, in which only 15% of those questioned were optimistic.
Similarly, the Forum of Private Business (FPB) found that 85% of its members were positive about 2014 and intended to develop their businesses in the coming year. Alexander Jackman, Head of Policy at the FPB, said, GDP figures are positive, employment is up and confidence among our members has lifted accordingly. Small businesses are showing a positive, though restrained, outlook.
The main challenges facing small businesses were cited as time, expertise and money “ despite better access to finance. The cost of doing business remains a key concern, with 46% of members claiming that business rates continue to be a difficulty, coupled with the rising cost of utilities.
The findings came as the National Institute of Economic and Social Research (NIESR) announced that it expects the UK economy to grow by 2.5% in 2014, adding that the economic recovery was now entrenched.
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