Soaring confidence attributed to Bank's guidance on interest rates

 

Businesses have brought forward spending plans as a result of the Bank of England’s forward guidance policy on interest rates, giving a fillip to Governor Mark Carney’s flagship initiative, research has found.

The policy, under  which the Bank will not consider raising rates until unemployment has fallen to 7 per cent, has drawn criticism as the jobless rate falls rapidly towards the target.

But the financial data firm Markit’s survey of more than 700 businesses showed 57 per cent of respondents are more confident about the economy thanks to guidance, while one in 10 have brought forward capital spending plans.

But there was also a warning for Mr Carney in the latest evidence of a runaway housing market from the website Rightmove, which revealed the average asking prices of property across the UK hitting a record of £255,962 in March, up 1.6 per cent or £4,000 on last month and beating the previous peak in July last year.

Last week Mr Carney said the Bank was watching the market “very closely”. It can recommend the Government’s Help to Buy scheme be reined in if necessary.

Markit’s research found that construction firms had responded most positively to forward guidance, while manufacturers had also been encouraged to accelerate spending plans. Hiring intentions have also increased, according to the survey. Chief economist Chris Williamson said: “Forward guidance is reported to be having a direct overall positive impact, most notably by boosting investment and hiring intentions.”

This was backed up by the manufacturers’ organisation EEF, which said the positive outlook was leading to record recruitment and investment plans. A survey of more than 300 companies showed strong trading conditions were spreading to all UK regions.

EEF chief economist Lee Hopley said: “This is the most positive set of indicators for some time, demonstrating that we’ve not just turned the corner, we’re actively heading down the right road.”

Rightmove director Miles Shipside meanwhile reported “a greater sense of urgency among buyers”.

“The property market is starting to unlock after years of being handcuffed by fragile consumer confidence and a lack of low-deposit mortgages,” he added.

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