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News - 12 February 2014

The Governor is about to adjust Bank interest rate policy.

The governor of the Bank of England, Mark Carney, who had linked a rate rise to a fall in unemployment, is reviewing the flagship policy after the jobless level fell faster than expected.

In August he said that the Bank would not consider a rate rise from their current low of 0.5% until unemployment has fallen to 7%.

It was not expected that this threshold would be reached until 2016, but the latest unemployment rate stands at 7.1%. Mr Carney said that the forward guidance policy needed to "evolve".

Tonmoy Kumar, Manager of the Accounts Department of ABDS comments:
“The policy was introduced to give households and businesses confidence that rates would stay low as the recovery took hold. But the faster-than-expected fall in the jobless rate unnerved investors and mortgage owners alike. Last week, the Bank's Monetary Policy Committee (MPC) again held the benchmark interest rate at 0.5%, marking five continuous years at that level.”

Many economists expect the Bank's new guidance to be tweaked to take into account a broader range of factors to reassure that rates are not set to rise any time soon.

Dame DeAnne Julius, a member of the Bank of England's Monetary Policy Committee said:
"I think what the committee will probably do is broaden their analysis of the labour market - say it's not just about the headline unemployment rate, it's about full-time versus part-time, it's about self-employed versus employed workers. "

Inflation has now fallen to the Bank's target of 2% for the first time for more than four years, easing the pressure to raise rates, while the latest growth figures showed UK output rising by 0.7% in the fourth quarter against 0.8% in the previous three months.

If you need any help and advice on Business Financial Planning and Development within the manufacturing and construction sectors, don’t hesitate, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your Business planning.

ABDS Chartered Certified Accountants of Southampton.
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