Interest Rates Linked to Unemployment

Interest Rates Linked to Unemployment.

Bank of England Governor, Mark Carney, has confirmed that Bank of England monetary policy will shift away from inflation targets and focus in growing the economy and creating jobs.

He suggested that interest rates will remain low for probably another 3 years and will be pegged towards unemployment below 7%.  Unemployment currently stands at 7.8%.

Comment
It is welcome that the Bank of England is offering clear guidance on when it would consider interest rate rises or not.

We suggest though, inflation is still the key driver and any link to unemployment is a smokescreen.  The UK, along with the USA and European nations that have huge debts need inflation to devalue public sector debt without every repaying it.  This is the key driver.

Low interest rates will of course provider a boost to business to enable them to plan further ahead as well as stimulate the property market as more people will buy homes or move up the property ladder.  There is little cheer though for savers and pensioners. 

Cash savings rates will remain low meaning that savers look to more risky market based investments and  pensioners will not secure high rate annuities as Gilt yields will remain low.

Expect economic recovery, expect inflation, expect wage rises, expect property price increases.