'A Rate Rise Now Is Necessary to Control Inflation in the Future' the Bank of England's Agent for Wales, Steve Hicks, on Why the Bank's Monetary Policy Committee Voted Last Week to Increase Interest Rates to 0.5%

Western Mail (Cardiff, Wales), November 9, 2017 | Go to article overview

'A Rate Rise Now Is Necessary to Control Inflation in the Future' the Bank of England's Agent for Wales, Steve Hicks, on Why the Bank's Monetary Policy Committee Voted Last Week to Increase Interest Rates to 0.5%


FOR the first time in over 10 years, the Bank of England's Monetary Policy Committee (MPC) has voted to increase interest rates.

On November 2 the MPC increased Bank Rate from 0.25% to 0.5%. Bank Rate is the official interest rate set by the MPC and it influences other interest rates charged by banks and building societies, as well as the interest rate paid on deposits.

During my conversations with organisations in Wales, I have been asked by quite a few people to explain why the MPC decided to do this.

To understand why, it is important to remember that Parliament has given the MPC responsibility to keep the rate of inflation - the pace of increases in prices of goods and services - at 2% a year. CPI is currently around 3%.

To ensure that the rate of inflation comes back down to the target, a majority of those on the MPC agreed that Bank Rate should increase a little, starting with a rise of 0.25% What has the MPC based that judgement on? Well, one positive aspect of the UK economy today is that unemployment is at its lowest level since 1975. Indeed, one million more people are in work than just two years ago.

More jobs means more people have money to spend which will help keep consumer demand up.

But, the very low level of unemployment is also likely to mean that wages will begin to increase more quickly as companies compete to take on new staff and keep their existing workers.

I can see signs of higher wages in my regular conversations with employers in Wales - it is becoming more common for them to say that the next pay rises are going to be a little higher than in recent years.

And if wages increase more quickly then prices in the shops will begin to rise more quickly as well, as companies charge more to pay for staff costs. That means a higher rate of inflation.

Also, with so few people now out of work, there isn't much scope for the economy to grow simply from increasing the size of the workforce. …

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'A Rate Rise Now Is Necessary to Control Inflation in the Future' the Bank of England's Agent for Wales, Steve Hicks, on Why the Bank's Monetary Policy Committee Voted Last Week to Increase Interest Rates to 0.5%
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