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| Version 3 | Version 4 |
|---|---|
| UK interest rates held until unemployment falls | UK interest rates held until unemployment falls |
| (about 1 hour later) | |
| Bank of England governor Mark Carney has said the Bank will not consider raising interest rates until the jobless rate has fallen to 7% or below. | Bank of England governor Mark Carney has said the Bank will not consider raising interest rates until the jobless rate has fallen to 7% or below. |
| Mr Carney said he expected this would require the creation of about 750,000 jobs and could take three years. | Mr Carney said he expected this would require the creation of about 750,000 jobs and could take three years. |
| The UK unemployment rate currently stands at 7.8%. | The UK unemployment rate currently stands at 7.8%. |
| The governor said this extra clarity was needed to avoid unnecessary fears that interest rates would rise after recent positive economic news. | The governor said this extra clarity was needed to avoid unnecessary fears that interest rates would rise after recent positive economic news. |
| Mr Carney said that the 7% unemployment figure was not a target, but a point at which the Bank of England would re-examine interest rates. The unemployment threshold will hold unless inflation levels threaten to rise too fast or it poses a significant threat to financial stability. | |
| Mr Carney said that until the threshold was reached the Bank would not cut back on its £375bn asset purchase programme, known as quantitative easing (QE). | Mr Carney said that until the threshold was reached the Bank would not cut back on its £375bn asset purchase programme, known as quantitative easing (QE). |
| The moves sees the Bank of England joining both the U.S. Federal Reserve and the European Central Bank in providing so-called 'forward guidance' on their interest rate policies. | |
| Growth forecast | |
| While upbeat on the prospects for the UK economy, Mr Carney said it had not reached "escape velocity" yet. | While upbeat on the prospects for the UK economy, Mr Carney said it had not reached "escape velocity" yet. |
| "A renewed recovery is now underway in the United Kingdom and it appears to be broadening," he said. | "A renewed recovery is now underway in the United Kingdom and it appears to be broadening," he said. |
| "While that is certainly welcome, the legacy of the financial crisis means that the recovery remains weak by historical standards and there is still a significant margin of spare capacity in the economy, this is most clearly evident in the high rate of unemployment." | "While that is certainly welcome, the legacy of the financial crisis means that the recovery remains weak by historical standards and there is still a significant margin of spare capacity in the economy, this is most clearly evident in the high rate of unemployment." |
| John Longworth, director general of the British Chambers of Commerce, said the forward guidance would reassure firms. | |
| "This will give businesses a much-needed confidence boost when looking to invest, as they know that any plans will not suddenly be derailed by a hike in interest rates," he said. | |
| But Alan Clarke, director of fixed income strategy at Scotiabank, said unemployment could drop below 7% - the rate that would trigger a re-evaluation of interest rates - well before the Bank of England expects. | |
| "Our knee-jerk reaction is that 2016 is a rather conservative assumption," he said. | |
| "Our working assumption was that level of the unemployment rate could be reached at least a year earlier." | |
| 'Knock-out' | |
| On the markets, shares rose and the pound fell immediately after the Bank's statement was released, although the movements were quickly reversed. | On the markets, shares rose and the pound fell immediately after the Bank's statement was released, although the movements were quickly reversed. |
| There had been widespread expectation that Mr Carney would commit the Bank to the new strategy. | |
| With short-term interest rates already at historic lows, the aim is to reduce longer-term interest rates. | With short-term interest rates already at historic lows, the aim is to reduce longer-term interest rates. |
| Knowing interest rates could remain low, potentially for years, gives banks and mortgage lenders the ability to "lock-in" customers at lower rates for longer. | Knowing interest rates could remain low, potentially for years, gives banks and mortgage lenders the ability to "lock-in" customers at lower rates for longer. |
| The Bank's guidance is subject to three provisos; breaching any of them would sever the link between interest rates and unemployment levels. | |
| These so-called 'knock-outs' are: | |
| The Chancellor of the Exchequer, George Osborne, welcomed the move. | |
| "I agree with you that forward guidance can play a useful role in enhancing the effectiveness of monetary policy and thereby support the recovery," he said in a letter to the governor. | |
| The Bank of England's quarterly inflation report was more upbeat about economic growth than it had been in May. | The Bank of England's quarterly inflation report was more upbeat about economic growth than it had been in May. |
| It presents its forecasts as a range of possibilities rather than a specific figure, but predicted accelerating growth for the rest of this year, with its central forecast being for growth of about 2.4% in two years. | It presents its forecasts as a range of possibilities rather than a specific figure, but predicted accelerating growth for the rest of this year, with its central forecast being for growth of about 2.4% in two years. |
| It also forecast that the CPI measure of inflation was likely to be at its target rate of 2.0% during 2015. | It also forecast that the CPI measure of inflation was likely to be at its target rate of 2.0% during 2015. |