Highlights
The Bank of England’s benchmark interest rate may stay low for a lot longer than we had thought likely.
Releasing its quarterly Inflation Report Wednesday, the central bank indicated it’s likely to start raising its key Bank early next year. And as it has done since February, it repeated its assurance that subsequent increases will be limited and gradual.
Since June, BOE officials have gone further, speculating that the “new normal” for the benchmark rate will be significantly below its historic average of 5.0%–and that’s quite a history, going back to 1694. Again Wednesday, BOE Governor Mark Carney said the Bank rate would “likely remain materially below its pre-crisis average for some time.”
But how long will “some time” last? When the BOE initially suggested rates would remain low, it seemed likely that referred to the period for which it provides forecasts, or three years out. Perhaps not. On page 42 of the Inflation Report, in a section that considers “Influences on policy in the medium term,” it says: “Looking beyond the MPC’s usual forecast horizon, the level of Bank rate needed to…keep inflation close to the target may remain materially below its per-crisis average for some time.”...MORE
