The much improved news on the UK economy has prompted investors to expect the MPC to raise official interest rates in the first quarter of 2015, 18 months earlier than the Committee has indicated they may rise. The rise in risk-free interest rates has in turn pushed 10-year gilt yields up above 3% and has offset any boost to equity prices from the better economic data. These developments do not imply that forward guidance has been ineffective – indeed, market interest rates might have risen much more without the policy. Nonetheless, market interest rates are now higher than they were when the MPC stated that they were at “unwarranted” levels in July.
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