Belfast Telegraph

Borrowing cost due to stay on hold

Half a decade of emergency low interest rates will be marked this week when Bank of England policymakers vote once more to keep the cost of borrowing on hold.

But the decision - which comes on the five-year anniversary of the Bank's decision to slash rates to the lowest level on record - follows a flurry of recent comments from members of the Monetary Policy Committee (MPC) signalling that rates will start to rise from spring 2015.

Martin Weale was the first to say rates were likely to increase in the second quarter of next year, in line with market expectations, in what marked the clearest signal yet from the MPC about the future path of borrowing costs.

But since then, his fellow policymakers have been out in force reiterating the message, with Ian McCafferty saying it was "not unreasonable" to expect rates to rise next spring.

The Bank abandoned its "forward guidance'' pledge linking the cost of borrowing to unemployment figures last month with a new policy that takes over when the rate of joblessness hits 7%.

The new version - dubbed "fuzzy guidance" - will see its decisions on interest rates instead based on how quickly the economy uses up its spare capacity.

The Bank said at the time it would give no timing on when interest rates would rise, although it did make it clear that market expectations for rates to rise at the start of the second quarter of 2015 - around April - was consistent with its target to keep inflation close to 2%.

It has also stressed that when rates rise, the increase will be gradual.

Howard Archer, chief economist at IHS Global Insight, said: "The Bank of England clearly wants to nurture recovery and not to risk choking it off by raising interest rates too early or too fast."

He is predicting that rates will reach 1% by the end of 2015 and 2% by the end of 2016.

He added: "The message repeatedly coming from the Bank of England is that while it is encouraged by the economy's recent strong performance, the Bank is not taking sustained recovery for granted and very much wants to see it become more balanced with business investment seeing sustained improvement and exports increasingly kicking in."

There was some encouraging news on the economy last week when a breakdown of gross domestic product for the fourth quarter of 2013 revealed a surge in business investment, suggesting the economy is becoming less reliant on consumer spending.

The data from the Office for National Statistics (ONS) showed that business investment rose by 2.4% quarter on quarter in the final three months of 2013, while upward revisions to previous estimates meant it had also increased for four quarters in a row for the first time since 2007.

The figures were released alongside the second estimate of gross domestic product (GDP) for the fourth quarter of 2013, confirming that growth remained unchanged on last month's projection at 0.7%.