There is a one-in-five chance a Bank of England condition for raising the Bank Base Rate will be met as soon as the first quarter of 2014, a report has suggested.
The National Institute of Economic and Social Research said the unemployment rate could reach 7% as early as the first quarter of 2014 – the threshold at which the central bank has said it will consider a possible rate rise.
However, the think-tank also said it did not expect interest rates to rise until a year later, in the second half of 2015.
Despite raising the prospect of a fall in unemployment early 2014, the report also suggested a scenario of more gradual decline. It noted: “There is a considerable uncertainty about the rate at which unemployment will fall.”
In its forward guidance on interest rates, the central bank’s Monetary Policy Committee identified a fall in the unemployment rate to 7% as one of the conditions for an interest rate rise. However, it also stressed this would not automatically trigger an interest rate rise. Any decision would also be based on wider analysis of market conditions.
Last month, HSBC chief UK economist Simon Wells told the Treasury Select Committee he thought the central bank was likely to make the first increase in the Bank rate after the general election in mid-2015.
He told MPs: “There is a potential you could see employment go down and growth take off. There might need to be a rate rise at that time [April 2015].
“But when you put politics and economics together I think it would be at least the second half of 2015.”
