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Geoff Harding of the Bank of England

Lots of interest in interest rates at Swindon Chamber’s Bank of England breakfast

During his last presentation to Swindon Chamber of Commerce – back in October 2013 – members were keen to learn from Bank of England deputy agent Geoff Harding when the historically low interest rates would be revised upwards.

Back then, he told networkers about the Forward Guidance, which had pledged not to raise interest rates until unemployment – which stood at 7.7 percent – had dipped below the seven percent threshold.

So when he appeared before the group again on Friday (November 7) business leaders were wondering: with unemployment now at six percent, do we need to start worrying about an interest rate increase?

“At the time, we reckoned unemployment would hit seven percent over three years,” said Geoff.

Lower for Longer is, apparently, the Bank of England’s mantra. “Inflation is not easy to forecast,” admitted Geoff. “CPI has dropped to 1.2 percent. This will justify some further analysis by the (Monetary Policy) Committee.”

Geoff’s best guess was that we would see the first rise, of a quarter of one percent, in October. But as bank rates creep up, where will it settle? “Not six percent,” he assured business leaders. “More like three percent.”

There was some positive news since Geoff’s last visit, with major revisions to the economic data. “We were talking about a six to seven percent fall in output during the recession,” said Geoff, “but it turns out it was less than that.

“And we were talking about only just catching by now up in terms of economic output, but in fact we sailed past that. We’ve had quite a big upward revision.”

However, he said, the rate of growth coming out of recession was weak – more like the 1929 crash than the recessions of the 1970s or 1980s.

“The economy has now moved from recovery phase to expansion phase,” he said, “but it’s been slow. We have some way to go.”

Most areas of the economy have seen growth other the past 12 months, he said. There has been consistent growth in business investment, and growth in consumer spending. Housing investment has seen a huge surge in the past 18 months, and there is a ‘nice bit of growth’ coming from international trade, although some of that is down to a weak imports market.

Predictably, pretty much the only area of the economy to see a reduction is government spending, as George Osborne ploughs ahead with his austerity measures.

GDP is now projected to grow by three to four percent, although there are signs that it will stabilise at its two percent target soon. Wage growth is up by two to three percent, although the working population is growing, so the average pay packet increase is around one percent.

One big change to the labour market is the number of older people still working. Over 75s now make up 4.9 percent of the workforce. In 2007 it was 1.8 percent. Seventy to 74 year olds account for 12.43 percent – almost double the 6.79 percent in 2007.

And there are a couple of ‘headwinds’ to watch before Geoff reports to Swindon Chamber of Commerce again.

Slowing growth prospects in the rest of the word, especially in Chine, the US and the Eurozone will have implications for our own economy.

And financial conditions may tighten as global recovery progresses, he warned.