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Bank stands still, but must be ready if Fed moves first

11 Sep 2015

IoD repeats call for interest rate rise

Responding to news that the Bank of England voted 8-1 in favour of maintaining the Bank of England base rate at 0.5%, James Sproule, chief economist at the Institute of Directors said:

“The IoD continues to believe that the time is right to start normalising monetary policy. Inflation may be low for now, but the economy is growing strongly enough to absorb a modest increase in interest rates. Headline employment growth seems to have plateaued, but people are switching into full-time jobs and wages are continuing to outpace inflation – all signs of a tightening economy.

“This far into the recovery, it is worrying that interest rates are still at an extraordinary low. The ability to cut rates and stimulate the economy in times of instability is crucial, but with rates at their historic level of 0.5 per cent, this is almost impossible.

“All eyes are now on next week’s meeting of the Federal Reserve. Given the strength of the domestic economy, it is perhaps surprising that interest rates have not yet started to normalise in the United States either. It would be even more surprising if the Bank of England did not follow the Fed’s lead on the timing of the first rate rise. If the US makes the first move next week, the Bank of England must be prepared to act as soon as it can.”


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