Rates held until unemployment falls

7 August 2013
Last updated at 06:25 ET

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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 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 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).

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.

“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.”

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, known as “forward guidance”.

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.

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Rates held until unemployment falls