UK interest rates will stay at their current level for the foreseeable future based on current econo...
UK interest rates will stay at their current level for the foreseeable future based on current economic indicators, according to Gerrard chief economist Simon Rubinsohn.
He said: 'Reflecting both the contents of the Inflation Report and the recent labour market data, it is hard to escape the conclusion base rates are on hold for the foreseeable future.
'Some commentators will no doubt begin to talk about the timing of the first increase in interest rates, given the upside risk to inflation outlined by the Bank of England. But we believe that this is way too premature.
'Indeed, should any of the downside risks to growth materialise, they are likely to be reflected in a rapid downgrading of inflation expectations.'
Rubinsohn noted the most closely watched measure of unemployment, the claimant count, fell unexpectedly by a further 4,500 in October. As a result, the jobless total slipped to its lowest level since Autumn 1975.
By way of contrast, the ILO measure, a more broadly based assessment of conditions in the labour market, showed a further rise in unemployment in the three months to September, he said.
Meanwhile, the Inflation Report published by the Bank of England sheds some light on the decision of the Monetary Policy Committee to leave base rates on hold.
'Significantly, the report shows underlying inflation rising above its 2.5% target by the end of this year and remaining in this area for much of 2003. Only towards the end of the two-year time horizon does the inflation rate edge back towards its target level.'
The Bank also suggests economic growth will accelerate next year thanks to the continuing strength of consumer demand.
The downside risks outlined are the familiar ones: a downturn in the global economy, a sharp slowdown in house price inflation and the impact of higher National Insurance contributions, Rubinsohn added.
'In recognition of this, the report concludes the principal risks to the growth scenario are on the downside but are on the upside to the central projection for inflation.'
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