Oil price fall ‘good for UK economy’

Media captionDeputy Governor of Bank of England Dr Ben Broadbent on potential change to interest rates

The fall in oil prices has been a “net good” for the economy, Bank of England deputy governor Ben Broadbent has said.

He told BBC Radio 5live’s Wake Up To Money that falling oil prices had helped to push up wages in real terms.

Mr Broadbent also said the UK was enjoying a “solid” recovery but he added there was “no great urgency” to put up interest rates.

Oil prices have fallen by 75% since mid-2014, due to an oversupply and sluggish demand.

And on Thursday Brent Crude fell 1.6% to $34.46 a barrel.

Speaking about the longer-term decline in prices Mr Broadbent said: “I think it’s a net good.”

He said that over the last couple of years real wages (which adjust for inflation) have risen 7%, which is the fastest growth rate in close to 15 years.

“A lot of that has to do in the drop in oil prices. That’s boosted consumption and UK growth overall,” he said.

“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,” Mr Broadbent said.

Interest rates

However the Bank of England does not appear to be in a hurry to push interest rates higher. Mr Broadbent said there was “certainly no great urgency to raise rates at the moment”.

“We will respond to events as and when they happen,” he said.

On Thursday the Bank of England announced that it had cut its forecast for economic growth.

In its latest Inflation Report, it cut its forecast for growth this year to 2.2%. In November it had predicted growth of 2.5%.

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