UK: Deloitte Monday Briefing: UK Interest Rate Outlook

Last Updated: 19 November 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017
  • The divergence between the UK economy and the rest of the world seemed to widen last week.
  • On Wednesday, the Bank of England raised its forecast for UK growth and the Bank's Governor, Mark Carney, proclaimed that recovery is "taking hold". The day before, in an almost unnoticed report, the Confederation of British Industry reported that confidence among small and medium sized UK businesses was at a 25-year high.
  • In contrast, growth in the euro area almost ground to a halt in the third quarter and, in a symptom of the level of concern about the region, the European Central Bank unexpectedly cut interest rates. The outlook for emerging markets is continuing to soften. Last week economists once again scaled back their forecasts for growth in 2014 in India, Brazil and Russia.
  • Stronger-than-expected UK growth has left Mr. Carney with a dilemma.
  • In August, Mr. Carney announced a new policy, Forward Guidance, designed to counter chronically weak UK growth. Under the policy, Mr. Carney signaled that the Bank would leave interest rates unchanged as long as the unemployment rate was above 7.0% and inflation was under control.
  • With the Bank not expecting unemployment to fall below 7.0% until mid-2016, the aim was to build confidence by signaling that interest rates would stay at rock bottom levels for three more years.
  • Since then unemployment has fallen faster than expected, to 7.6% in September. Today the Bank sees a 50% chance that the jobless rate could hit 7.0% in a year's time, 18 months earlier than forecast in August. An unexpectedly strong recovery has introduced a risk that the Bank might need to raise rates in just a year's time, towards the end of 2014.
  • Forward Guidance was designed to bolster activity, but has been launched into an economy that is recovering faster than expected.
  • As a result, interpreting when the Bank might raise interest rates, and in what circumstances, has become increasingly tricky.
  • Last week the Bank backed away from the idea that unemployment holds the key to the timing of rate hikes. Mr. Carney now says that a 7.0% unemployment rate is a "way station" on the road to higher interest rates, not a target. The Bank also downgraded unemployment as a gauge of spare capacity by raising its estimate of the number of hours people want to work.
  • The verdict of financial markets on all this is clear. They assume that rates are likely to rise sooner than implied by the Bank. Financial markets are pricing in rate hikes in the UK from about the middle of 2015, with base rates ending 2015 at the 1.25% mark, up from a current level of 0.5%.
  • In August, the Bank of England suggested interest rates might not rise till the latter part of 2016. Today, financial markets are factoring in base rates of around 2.25% by end the end of 2016.
  • The market belief that rates will rise earlier than the Bank implies is, in a sense, a thoroughly good thing in that it suggests that the economy is normalising. Base rates of just 0.5% are a symptom of an economy that is not working.
  • But some worry that uncertainty around Forward Guidance, and a shifting definition of what it means, could knock the Bank's credibility.
  • That is unlikely to be of concern to many in an economy which is, at last, growing.


UK's FTSE 100 ended the week down -0.2%.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • The Bank of England raised the prospect of a rise in interest rates in 2015, with the UK's "unexpectedly strong recovery" meaning unemployment could fall below the 7% threshold needed to trigger a rise in rates
  • Confidence levels among small businesses are rising at the fastest pace in 25 years, according to survey data from the Confederation of British Industry (CBI)
  • Growth in the euro area slowed to a quarterly rate of 0.1% in the third quarter, driven by weak export performance
  • The Maltese government has approved a plan to attract "high-value" people to the small island by selling passports, and effectively EU citizenship, for €650,000
  • Japanese GDP growth slowed to an annual rate of 1.9% in Q3 2013, half the rate of growth seen in the previous quarter when growth was boosted by more significant government stimulus
  • Japanese consumer confidence fell unexpectedly in October, registering the largest fall since a record earthquake in 2011
  • The Independent reports that a number of fund managers controlling large investments in UK energy firms have warned that further political interference in the sector may make them reconsider their investments
  • SMS text revenues are set to fall from $120bn in 2013 to $97bn by 2018 according to forecasts by Informa Telecoms & Media, due primarily to the rise of 'over-the-top' (OTT) messaging apps on smartphones
  • Demand for gold fell to a 4-year low in Q3 2013 according to data from the World Gold Council, with the price of the precious metal having fallen as much as 38% from record highs in 2011
  • The Organisation for Economic Cooperation and Development (OECD) criticised the pace of economic reform in France, saying that the country had seen "no significant improvement" in its external position since 2008
  • The Irish Prime Minister Edna Kelly announced that Ireland will next month become the first of 4 European bailout countries to exit its rescue programme and return to international markets
  • The European Commission warned both Spain and Italy that their 2014 budgets may not comply with European Union's new debt and deficit targets
  • The Chinese government is to relax its decades-old one child policy and move to more market-based pricing, as part of a series of liberalisation reforms
  • Jefferson County in the United States announced that it is to sell $1.7bn of debt to avoid bankruptcy
  • Online retailer Amazon announced that the United States Postal Service (USPS) will begin delivering its packages to customer on Sundays in most US cities, offering a potential boost to the suffering postal service
  • The United States is set to overtake Saudi Arabia as the world's biggest producer of oil within the next 2 years according to estimates from the International Energy Agency (IEA)
  • Barclays Bank is to relocate 4 of its branches to Asda supermarket stores, and hopes to move another 4 branches next year, in an effort to make banking more convenient
  • The Swedish and Swiss consulates in Shanghai have launched a joint awareness campaign to help Chinese tourists tell the two countries apart, with the campaign website clarifying that Sweden is the land of "aurora borealis, ice hotels, sled-pulling reindeer, gay marriage, Vikings and stay-at-home dads" – Swede and sour

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.