5th February 2016
Falling oil prices has been good for the economy as people’s money stretches further than it did.
Ben Broadbent, deputy governor of the Bank of England, told the BBC that oil price drops have been a ‘net good’ for the country as wages had been pushed up in real terms.
He was confident that the UK was enjoying a ‘solid’ economic recovery and but there was ‘no great urgency’ to increase interest rates from their historically low 0.5%, despite the US increasing base rate in December for the first time in a decade.
The price of a barrel of oil has slumped 75% since mid-2014 due to oversupply, and Brent Crude fell to $34.46 a barrel yesterday.
Broadbent said real wages adjusted for inflation have increased 7% over the past two years, the fastest rate of growth in nearly 15 years.
‘A lot of that has to do [with] the drop in oil prices,’ he said. ‘That’s boosted consumption and UK growth overall.
‘It was only in the latter part of 2012, once confidence about the eurozone had begun to come back, that the UK economy really got going. So, I would date the recovery not from 2008 or 2009, but actually from early 2013.
‘And since then we’ve enjoyed three years of pretty solid growth certainly in the labour market.’
Although a recovering economy should signal a rise in interest rates, Broadbent said the Bank is in no rush and there is ‘certainly no great urgency to raise rates at the moment’.
‘We will respond to events as and when they happen,’ he said.
The Bank cut its forecasts for economic growth on Thursday; expecting 2016 growth to be around 2.2% instead of 2.5%.