Base Rate to rise in Spring 2015

Base rate is likely to rise next spring, Monetary Policy Committee member Martin Weale said today.

Speaking to Sky News Weale said once base rate rises, further increases will be gradual.

He says: “I think it is very helpful that we try and explain the most likely path for interest rates that the first rise will come perhaps in the spring of next year, and then the path is likely to be relatively gradual.”

In the latest MPC’s minutes, published earlier this week the committee said base rate is likely to be “materially” below the 5 per cent average set by the Bank of England prior to the crisis in the coming years – even when the economy recovers.

Since August, the Bank of England has sought to give consumers an indication of when base rate is going to rise through a policy of forward guidance.

It stated that base rate would not increase until unemployment dipped below 7 per cent or there was an unexpected spike in inflation.

However, earlier this month, Carney changed how the bank uses forward guidance  just six months after first introducing the policy to the UK. Although he maintains the policy has worked so far.

The overhaul of forward guidance sees the direct link with employment dropped so the BoE can focus on a much wider range of indicators focusing on absorbing all of the spare capacity in the economy. This will see the Bank publish forecasts of 18 more economic indicators for the first time.

As well as unemployment, the MPC will monitor factors such as participation in the labour market, average hours worked and the extent of involuntary part-time working, surveys of spare capacity in companies, labour productivity and wages.