The Bank of England could increase interest rates sooner than expected due to the UK’s surprisingly impressive economic recovery.
After years of recession – the county’s deepest recession since World War II – the British housing market and job market is now booming.
Unemployment in the U.K. declined in Q3 2013, down to 7.6 percent.
The Bank of England released a statement which said that unemployment could potentially drop to 7 percent by the end of 2014.
The Bank of England’s MPC (Monetary Policy Committee) said its lending rate and easing program depend on the United Kingdom’s unemployment rate.
The MPC previously stated that the current Bank Rate of 0.5% (which has lasted three years so far) will not rise until unemployment drops down to a maximum of 7 percent.
Most experts and economists predicted that this would not happen until 2016.
According to the Bank of England’s Inflation Report, November 2013:
“The UK economy expanded by 0.8% in 2013 Q3 and business surveys point to continued robust growth in Q4. The gathering pace of expansion during 2013 was supported by an increase in domestic demand. That reflects both an improvement in credit conditions – for example, rates on new loans to households have fallen significantly over the past year — and a reduction in uncertainty.”
Neil Jones at Mizuho Bank said:
“At this pace, the BoE may well raise interest rates prior to the Fed.”
Mark Carney, Governor of the Bank of England, said “for the first time in a long time, you don’t have to be an optimist to see the glass as half full. The recovery has finally taken hold.”
Mr. Carney added:
“It is welcome that the economy is growing again, but a return to growth is not yet a return to normality. Nearly one million more people are out of work than in the years before the financial crisis.”
BNP Paribas economist David Tinsley said:
“In essence the bank has conceded … that the first rate hike will come in 2015, though it continues to imply that the tightening cycle will be slower than the market is expecting.”