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Carney Sets Out New BoE Monetary Regime

The Bank of England will keep interest rates at the current level of 0.5 per cent at least until UK unemployment falls below seven per cent, the Bank of England’s governor Mark Carney has said.

Speaking at his first news conference as governor, Carney laid out the Bank’s new forward-guidance monetary regime, which will give advance indications of future policy decisions.

Carney’s announcement coincided with the Bank’s upward revision of UK growth forecasts from 1.2 per cent to 1.4 per cent this year, and from 1.7 per cent to 2.5 per cent in 2014.

Unemployment in the UK is currently at 7.8 per cent and many economists think it’s unlikely to fall to seven per cent until 2016.

Although the Bank’s Monetary Policy Committee (MPC) voted to maintain the official bank rate at 0.5 per cent and its quantitative easing programme at £375 billion, Carney said that the Bank was willing to undertake further monetary stimulus while unemployment remained above the seven per cent mark.

Key announcements include:

  • CPI inflation is likely to remain at least 0.5 per cent above the Bank’s two per cent target over the next 18 to 24 months inflation in the medium-term will ‘no longer be sufficiently well anchored’.
  • Speaking to the BBC, Marc Carney said that keeping bank interest rates low will likely boost the UK economy by ‘more than half a percentage point.’
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