Confidence is key to rates success

announcement: Bank of England governor Mark Carney and below Babs Murphy
announcement: Bank of England governor Mark Carney and below Babs Murphy
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The success or failure of changes to the Bank of England’s interest rates policy will depend on whether or not it reinforces business confidence, a Lancashire business leader has said.

Babs Murphy, chief executive, North and Western Lancashire Chamber of Commerce, made the comments after Bank of England governor Mark Carney announced a overhaul of the policy to reflect falling unemployment and the UK’s economic recovery.

Babs Murphy

Babs Murphy

The changes mean the rate policy will not just be determined by unemployment, but a range of other measures.

Previously Governor Carney said the Bank would only raise interest rates when unemployment levels reached a certain height, but last week he said that he’d instead look at a range of different factors before taking such action.

He said the forward guidance policy, which he introduced last August, is working, but the policy needed to be revisited because of strong jobs growth. He had initially said the Bank would not consider raising interest rates from the current 0.5 per cent until unemployment had fallen to seven per cent or below.

But unemployment has fallen at a faster rate and could reach seven per cent by the spring.

Ms Murphy welcomed the move, saying it is right not to rely on one measure which could easily fluctuate.

She said: “Governor Carney and the Monetary Policy Committee (MPC) are right to evolve the forward guidance policy. Now that the emphasis has shifted towards a wide range of economic indicators, including spare capacity, it should help avoid a situation whereby unexpected shifts in any one indicator would immediately trigger expectations of an imminent interest rate rise.

“The success or failure of the policy will be whether or not it reinforces business confidence.”

Ms Murphy said she is now looking at George Osborne to do what he can in his Budget speech to further drive the economy. She said: “We share the MPC’s belief that the recovery has the potential to continue, and attention now turns to the Chancellor’s Budget where we hope to see measures announced that help businesses continue to create jobs and drive the recovery.”