Mark Carney, the Governor of the Bank of England, has given a clear indication that interest rates will stay at the all-time low 0.5 percent for now, with plans for a limited and gradual hike once all the criteria has been met. The Canadian had previously said that the Bank of England would look at adjusting the historic low rate once unemployment reached 7 percent . Now that the figure has been reached, lots of home-owners and businesses have been looking on nervously. That is because a large percentage of the UK has interest-only loans, and so while people have enjoyed paying back their lender at a massively reduced rate over the years, the slightest rise in interest rates will put them back into a precarious position. Although unemployment has dropped, lots of people are earning less money than they were before the recession. Furthermore, it means anybody looking to take out a loan will find it harder to make repayments than if they took out the loan now.
Speaking on BBC1’s Andrew Marr Show, Carney assuaged fears and explained exactly what he meant about the 7 percent unemployment figure, while reassuring viewers the public it had nothing to fear. Carney said the Bank of England ONLY planned to think about amending interest rates once unemployment came down to 7 percent, and it never said action would be taken immediately.
During the interview with Marr, Carney said the UK labor market not only had more people who want to work, it also had more people who were seeking full-time employment. Furthermore, he claimed there are more people who have chosen to go down the self-employment route rather than work for a company.
Carney added there was “more slack” in the labor market, and that people who have been out of a job for longer periods were finding work faster than they had before. When explaining what that meant, Carney said the Bank of England can “responsibly take our time and only adjust interest rates once more of that slack is used up”. Although he was non-committal on dates, Carney, gave a clear indication that interest rates will stay at the all-time low 0.5 percent until further notice, with plans for a limited and gradual hike at some point. Carney said the increased capacity in the labor market meant the Bank of England had to face the question as to what happens when he and his workforce had to adjust the interest rates.”
Although the rate hike may be weeks, months or even a year or so in the future, the UK as a whole will be buoyed by the news that Mark Carney, the Governor of the Bank of England, said his plans are that interest rates will stay at the current all-time low of 0.5 percent for now. Yet the question is more about when than if plans for a limited and gradual hike will be introduced and how it will impact an economy still trying to find its feet. The UK is definitely in a better place than it was towards the end of the previous Prime Minister’s tenure, but whether it is ready for a rate hike, only time will tell.
By Robert Shepherd