Coffee House

Interest rates set to stay low for the foreseeable future

7 August 2013

Mark Carney made his mark this morning. Moments ago, he opened his inflation report and issued his ‘forward guidance’, which is designed to make the markets aware of his long-term plans for interest rates. This is important because, although there are signs of life in the British economy (and Carney was cautious about them), inflation remains above the Bank of England’s target, the base interest rate remains rooted to the floor and unemployment remains high at around 8 per cent. There is also the question of Britain’s mounting debts, the answer to which will largely depend on how the bond markets react to this and other announcements. And then there is the prospect of further quantitative easing…

So, what happened? Channel 4’s Faisal Islam has some very helpful tweets of the headlines:

Basically interest rates remain at 0.5% until unemployment below 7%, expected 2016/2017… (Unless inflation surges)

— Faisal Islam (@faisalislam) August 7, 2013



Further QE possible if unemployment above 7%. QE not unwound while unemployment above 7%

— Faisal Islam (@faisalislam) August 7, 2013


What can we make of that? The Bank clearly thinks that inflation is not the greatest threat to Britain’s prosperity. Pensioners and those on fixed incomes would probably disagree with Carney’s analysis, but those who are unemployed and those who are underemployed (that is those in part time work who require full time work) might share his view. Either way, the Monetary Policy Committee will think again about interest rates and the rest when unemployment falls to 7 per cent (roughly an additional 750,000 jobs). Everyone seems to agree that this will not happen before the next election, so George Osborne has no need to change course. This weakens Labour’s hand still further. If the recovery really gets going, the party will be in an very tricky spot.

In other news, Carney and his men rejected out of hand the suggestion that the Help to Buy scheme is starting another unsustainable housing boom, which will please Osborne no end. However, it is worth noting that suppliers to construction firms are reporting spikes in demand for materials used in residential housing of about 25 per cent since the scheme was introduced. It’ll be interesting to see how this latest Osborne gamble pans out.

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  • Robert Taggart

    This capitalised scrounger will not be spending any of his hard won dole !

  • Iain Hill

    How many pensioners robbed of their savings income for years now will react at the allot box?

    • Robert Taggart

      Not just the ‘old biddies’ !

  • David Lindsay

    Savers ignored again.

    Although I accept that there is a considerable overlap, there are five times more of us in this country than there are mortgage-holders, who have borrowed our money.

    At this rate, so to speak, I might close my savings account and put the whole lot in my current account.

    It would make no difference. Except that I could withdraw all of my money any time that I liked.

    • Robert Taggart

      Better still – put it under the bed – undeclared !

      • David Lindsay

        For all the return that I am getting on it, it might as well be under the bed.

    • paulus

      Put it in shares you will get 5% on some. Or stick it on an outsider at the Derby and you’ll get 100-1.

      Or put it into housebuilding companies and concrete as we are about to tarmac the South East of England. Creating the greatest city state since Rome .

  • the viceroy’s gin

    So now, the 21st Century version of stagflation is to be cemented into place. They’ve even imported a kommissar to enforce regime discipline.

    Those of us who lived through the 20th Century version of stagflation 30-40 years ago will recall the peculiar combination of low economic growth, high unemployment, high inflation and high interest rates… and how governments and their chosen interests worked feverishly to lock all that into place. Conditions are only marginally different today, but they are also being locked into place, obviously.

    So the misery index will stay at equilibrium, and governments will print up the cash to give over to themselves, to spend out at their fancy. And the banksters will continue to get their dole of the fresh bales of cash, cheap, so they can head for the casino as usual.

    Inflation and economic stagnancy were what was driving the “Arab Spring” you Speccie teenagers were swooning over a while back. In all your mastercard marxist cheers for “democracy”, you didn’t understand that then or even mention it, but it was. And nothing changed re the Egyptian economy and outlook, so another kerfuffle erupted a few weeks ago. Rather than sharing the little tittle tattle from within the Londonistan bubble, you all may want to consider exiting yourselves from that bubble and having a larger look outside it.

    That Egyptian story may have some lessons, but not the ones you kids have conjured so far. The above mentioned equilibrium will not last, imported kommissar or no. It’s only a matter of how abrupt the change is.

  • Daniel Maris

    Time to start the Campaign for a Real Economy (CARE) – aiming at:

    1. Moving from mass immigration to focussed immigration.

    2. Eliminating all involuntary unemployment.

    3. Making work pay.

    4. Developing the independent home economy through energy independence, recycling, innovative raw materials substitution, increased manufacturing, increased agricultural production.

    5. Developing a first class education system at primary and secondary level.

    • Tom Tom

      You will need a revolution to overthrow the oligarchy

      • dalai guevara

        I am amazed to witness your comments stand ‘the test of time’.
        In the pollinating world, what happens when you remove the queen?

  • Alex

    My memory isn’t what it used to be. Was “We promise to bankrupt savers in order to subsidise home-owners” in the 2010 manifesto?

  • HookesLaw

    A spike id demand for materials, from what sort of base?

  • Tom Tom

    He has no choice. Interest Rates will remain low globally and Banks will be funded by The Central Banks so will not need deposits. Annuities are dead as are insurance-based savings. There is no way to accumulate capital without speculation or gambling. The Capitalist System is now fully Socialised and the Era of Corporatism or what Mussolini called The Third Way has been achieved and is now backed by a Surveillance State able to by-pass any parliamentary accountability for spending.

    • HookesLaw

      Preposterous rubbish.

      • Tony_E

        No, not really, though the language is a bit alarmist.

        But this was always the way it was going. The creation of money is manna from heaven to the speculators, driving prices ever higher in over liquid markets. The Obama admistration is in the thrall of Wall St, the Bush one before it (though strangely enough Clinton has a marginally better record, including on spending and welfare reform).

        Where the USA leads (the dollar being the reserve currency of choice), we tend to follow, because we need stable Sterling /Dollar prices so as not to price ourselves out of world markets.

        While this is good for the Investment bankers and Hedge funds, it is increasingly bad for the average man on the street, who cannot save (because real savings rates are negative) and cannot afford the continual rise in the cost of living due to bubble economics predicated around the pushing of fresh money into commodities.

        This is the definition of ‘Crony Capitalism’ or in reality – Corporatism (when you combine that with the layers upon layers of regulation which protects large players in the market by making it difficult for smaller players to gain entry). It’s only because of skewed markets that this can occur, and is always bad for the individual, good for the institutional investor or the rich speculator, and a sign that debt/ money creation is no longer being restrained by the sensible actions of central banks.

      • Tom Tom

        You assess your own contributions aptly

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