On Wednesday, the Bank of England announced it would not increase its interest rates until the unemployment rates in the UK fall below the 7% level, and it does not expect to see that happen for at least the next three years.
Issuing forward guidance with great detail on monetary policy for just the first time since Mark Carney, the new Governor took the reins, the UK’s central bank said it was attempting to avoid an early increase in market rates of interest, which is the cost of borrowing for consumers and businesses.
That, said the bank, would risk choking off a recovery in the sixth biggest economy in the world, which has started to accelerate over the last weeks.
At this stage, said the bank, the biggest concern is that as the economy builds even further pace in its recovery an unwarranted change in the expectation of stimulus policy could cause it to be slowed.
The Bank of England upped its forecast for growth in the economy for 2013 from 1.2% to 1.5% and from 1.9% to 2.7% for 2014.
Official interest rates have been held by the bank at an all time record low since March 2009 at 0.5% and spent over $600 billion in purchasing government bonds in a stimulus move for the economy following the financial crisis.
Carney announced that the recovery in economic activity was broadening however, it was still at the slowest on record.
Output in the economy would not return to levels prior to the crisis for at least 12 more months and one million more people today are still unemployed, said the Governor, then prior to the crisis.
Unemployment in the UK currently is 7.8% and another 750,000 jobs are required for it to fall below the 7% threshold.
However, Carney pointed out that just because the 7% rate is reached at some point it does not mean interest rates automatically will increase.