UK
Interest Rates Expected to Stay Constant
Mark
Carny, the Bank of England governor stated that United Kingdom interest rates
are likely to remain low for the near future. The Bank of England expects
interest rates to be held at 0.5% until 2016. Carny believes that if interest
rates are gradually increased it will still result in a relatively low interest
rate environment. Carny stated that interest rates is strongly related with the
strength of the domestic economy. The Bank of England is closely monitoring study
groups of households that aim to find the impacts of an interest rate increase.
Productivity of the UK economy is expected to exceed expectations, eliminating
the pressure of inflation on prices.
Andy
Haldane the chief economist of the Bank of England expects more downside risks
to growth and inflation than indicated by Carny. He believes that an interest
rate decrease may be the most effective move. Haldane stated, “I see the
balance of risks around UK GDP growth and inflation as skewed materially to the
downside, more so than embodied in the November 2015 Inflation Report.”
The
UK Pound continues to devalue relative to the U.S. dollar and the Euro. This is
concerning as the Bank of England continues to hold off on an interest rate
change. I believe the UK needs to make interest rate changes sooner than later
so the implications are made fully aware. Adjustments then can be made so that
the economy can fully recover from its current downfall.
2 comments:
This is an interesting move from the Bank of England deciding to hold the interest rates constant. With a devaluing British Pound, keeping the rates low is indeed concerning. Also, with an expectation of the US interest rates to rise soon, valuation of the US dollar will keep getting stronger against other currencies and US assets will become more attractive to foreign investors. Investment in the UK might suffer as a result. I wonder what factors led to this decision by the Bank of England. Although exports will benefit in the UK but it will be interesting to see what actually happens to the UK economy in the near future.
I agree with all of what Md has said. Right now, the UK is in a similar position that the U.S. is in. In order to get themselves out of their current situation I would think that they would want to raise rates. By raising rates this would increase demand for investments by foreigners which would also increase demand for the pound. As a result, their currency would appreciate, strengthening the buying power of the citizens and increasing consumption.
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