Governor of the Bank of England Mark Carney has ruled out an early increase in borrowing costs, vowing that this week’s faster than expected fall in unemployment will not lead to an automatic interest rate rise that might harm the recovery. Softening his flagship forward guidance policy of linking an interest rate rise to a fall in unemployment rate to 7%, Carney denied that it has caused a headache for the Bank – saying that “if our forecast is going to be wrong, it’s better for it to be wrong in that direction”. He has also announced that when the Bank does decide to raise interest rates for the first time since the financial crisis, that changes will be gradual. Some City analysts are now expecting Carney to announce that he will lower the threshold at which the Bank would consider raising interest rates to an unemployment level of 6.5%, although the Governor has said that the Bank’s monetary committee will consider all aspects of the labour market and not just the unemployment rate (Telegraph Business p.1, Guardian FP, FT FP, Independent p.4)
Launching a major counter-offensive against Labour’s accusations of a cost-of-living crisis, Department for Business Minister Matthew Hancock writes in the Times today that there is “stark” evidence that after-tax pay grew by more than prices for all but the best-paid 10%. The Conservatives insist that the recovery is reaching ordinary families and that standards of living are on the rise, as the latest ONS Annual Survey of Hours and Earnings showed that working families’ pay rose a third faster than inflation in the year to April 2013. The data also shows that growth in take-home pay is strongest in the North and Midlands, and weakest in London and the South, rivalling Labour’s assertions that economic growth is unevenly spread and enhancing the north-south divide (Times FP and leading article, Telegraph FP, Mail p.2).
The number of first-time buyers stepping onto the property ladder has surged to its highest level since 2007, as “schemes like Help to Buy provide vital support” according to LSL property Services. The volume of first-time buyer deals in December 2013 was up 30% from a year previously. But while the average deposit for a first-time buyer has fallen by 3.6% since December 2012, their mortgages are getting bigger – jumping by 11.4% in a year (Times p.44).
At the World Economic Forum in Davos today, Cameron will claim that fast-recovering Britain offers an opportunity to win back jobs lost overseas, saying “there is a chance for Britain to become the Re-shore Nation”. He will announce that the Coalition’s low business taxes plus the prospect of cheap energy from shale gas are set to decisively reverse the off-shoring trend. He will report that many firms are already looking to relocate call centres as well as high-skilled manufacturing and technology plants back to the UK after years of outsourcing production and services to India and the Far East. 1,500 manufacturing jobs have already been brought back to the UK since 2011, with companies such as food manufacturer Symington’s, model train firm Hornby, and fashion brand Jaeger relocating back to Britain. More than 1 in 10 SMEs have brought back production to Britain in the past year, more than double the proportion sending it in the opposite direction overseas (FT p.4, Express p.4, Mail p.2).