Policymaker denies Bank of England underestimated pace of recovery

The Advertiser Series: SITE VISIT: Ian McCafferty, right, with Ebac and founder John Elliott and managing director Pamela Petty during a visit to Ebac, in Newton Aycliffe SITE VISIT: Ian McCafferty, right, with Ebac and founder John Elliott and managing director Pamela Petty during a visit to Ebac, in Newton Aycliffe

THERE will be no sudden hike in interest rates the new year even if unemployment falls below seven per cent, a senior Bank of England policymaker told The Northern Echo.

During a fact-finding visit to the region, Ian McCafferty, a member of the Monetary Policy Committee (MPC), denied that the Bank’s so-called forward guidance had underestimated the speed of the recovery and was at risk of failing to react to positive signs of growth, that some commentators fear could fuel inflation next year.

The MPC has said it will only consider lifting interest rates above their historically low level of 0.5 per cent until joblessness drops to at least
seven per cent.

Forecasts had suggested that rates would remain at 7.6 per cent for now, but yesterday’s figures for the quarter to October showed an unexpectedly steep fall, however, jobless rates across many parts of the North-East remain stubbornly high.

Mr McCafferty, while stressing that the seven per cent guideline threshold will not automatically trigger an interest rate rise, acknowledged that unemployment was falling more quickly than the Bank had expected when the guidance was announced in August.

Mr McCafferty, said: "Some people have argued that has made it (forward guidance) less relevant.

"In a period of early recovery, forward guidance has a great deal of merit in helping to sustain and build confidence.

"Some City commentators have been looking at previous relationships between how the economy has performed and when the Bank has lifted
interest rates. They have said that after three quarters of growth we should be expecting to see an interest rate move pretty rapidly in the next few months.

"But the economy is still three per cent smaller than it was in 2008. We want to see consistent, sustained growth for some time in order to allow the economy to restore itself to where it needs to be.

"Guidance is important in not allowing interest rates to rise to early which would head off the recovery."

His remarks added to comments by the Bank’s chief economist Spencer Dale last week that rates would remain low until there was a prolonged period of strong growth, unemployment is significantly lower, real incomes are higher.

The minutes of the MPC meeting earlier this month showed that it expected inflation to fall towards two per cent in the first quarter of next year and later decline further amid a strengthening pound. They also revealed that policy makers continued to believe that a burgeoning recovery was on the way.

In addition, Mr McCafferty said the Bank was mindful that signs of recovery, such as rising house prices and falling unemployment, were less pronounced in areas, such as the North-East, than in the South-East.

"One of the purposes of visits such as my coming to County Durham is that it helps us to learn a huge amount about what is really going on at the sharp end of the economy, and to factor it into our thinking.

"I appreciate that this region continues to face significant challenges, but I have also been heartened by positive news from areas, such as the local manufacturing sector," added Mr McCaffery, a graduate of Durham University, who spent part of his two-day trip hearing how Newton Aycliffe manufacturer Ebac was investing in new production lines to become the UK’s only maker of freezers and washing machines.

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10:54am Thu 19 Dec 13

gramps427 says...

They love to throw lots of figures at people; its a shame that few actually relate to each other, or to real life! There are more people in work, perhaps, but they neglect to mention that there are more people in work claiming welfare benefits than there are out of work. The Government are planning even more welfare cuts next year simply to pay for them; they have found a way to reduce the cost of Labour for their bosses, the Elite, so they are pleased with themselves. Vince Cable has suggested that London and the South East are draining investment from the rest of the country- an honest politician? Good job he's a Lib Dem or else he would have been out of the door like the odd Conservative who oppose the Heathrow extension.
They love to throw lots of figures at people; its a shame that few actually relate to each other, or to real life! There are more people in work, perhaps, but they neglect to mention that there are more people in work claiming welfare benefits than there are out of work. The Government are planning even more welfare cuts next year simply to pay for them; they have found a way to reduce the cost of Labour for their bosses, the Elite, so they are pleased with themselves. Vince Cable has suggested that London and the South East are draining investment from the rest of the country- an honest politician? Good job he's a Lib Dem or else he would have been out of the door like the odd Conservative who oppose the Heathrow extension. gramps427

11:55am Fri 20 Dec 13

gramps427 says...

Shame that my last comment has become attached to a different article; Still its good to see that the Treasury are concerned at just how delicate this supposed growth is and are taking a closer look at this region and how its being affected. Lets hope they don't meet too many smiley faces trying to talk up the region instead of telling the truth mixed in with the good news.
Shame that my last comment has become attached to a different article; Still its good to see that the Treasury are concerned at just how delicate this supposed growth is and are taking a closer look at this region and how its being affected. Lets hope they don't meet too many smiley faces trying to talk up the region instead of telling the truth mixed in with the good news. gramps427

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