Governor Mark Carney declares recovery is here, but will interest rates rise?

The latest economic forecasts looked, on the surface, like good news

Economics Editor

More growth, lower inflation, unemployment coming down quicker – the latest economic forecasts from the Bank of England released today looked, on the surface, like unmitigated good news.

But there was also a sting in the tail: the possibility that interest rates could go up far sooner than the Bank had previously led the British public to expect.

“For the first time in a long time you don’t have to be an optimist to see the glass as half full,” the Governor, Mark Carney, told a press conference at the Bank’s Threadneedle Street headquarters today, adding: “The recovery has finally taken hold.”

The Bank upgraded its central growth forecast for this year to 1.6 per cent, up from the 1.4 per cent it pencilled in three months ago. It sees growth in 2014 coming in at 2.8 per cent, higher than the 2.5 per cent it predicted in August. The inflation forecast was also revised down by the Bank, following the surprise dip in Consumer Prices inflation to 2.2 per cent this week.

In August the Bank of England forecast that the unemployment rate would probably fall to 7 per cent in the second half of 2016. today, however, it pulled this forward by a year to the third quarter of 2015.

The Bank also said there is a possibility the 7 per cent rate could be reached as early as the fourth quarter of next year should interest rates remain fixed at their historic lows of 0.5 per cent over the next 12 months.

The scenario of a relatively rapid unemployment fall was supported by official figures today which showed the jobless rate declined to 7.6 per cent in the three months to September, down from 7.8 per cent in the preceding quarter and the lowest rate for three years.

But the potential hazard for the economy lies in that jobless forecast. Under its forward guidance policy, introduced in August, the Bank has pledged not to raise interest rates until the jobless rate comes down at least to 7 per cent. So hitting 7 per cent sooner could, potentially, mean an earlier rise in interest rates. That would, in turn, mean higher repayments on loans and mortgages for many businesses and households.

Mr Carney was keen to dispel this fear today, arguing that it was by no means certain the Bank would lift rates when the unemployment rate hit 7 per cent.

“We will not even begin to think about moving interest rates until that [7 per cent] threshold is achieved and when it is achieved it will be a question of how much momentum the economy has and its ability to withstand an adjustment in monetary policy,” he said.

But that could be an increasingly difficult message to transmit to the public. A survey by the data provider Markit today showed that nearly half of households expect interest rates to go up within a year. When the same question was asked in August, this was just one in three.

Given today’s radical revisions to the jobless forecast and the vagueness of the implications for interest rates, the Governor was asked whether forward guidance has any real power to influence expectations any longer.

In response Mr Carney insisted that if the Bank had not introduced guidance, financial markets and the wider public would be anticipating a rise in interest rates right now given the rapidity with which the economy has bounced back since the spring.

“Let’s say we didn’t have forward guidance in August,” he said. “The discussion would be ‘Is the Bank going to raise rates today?’ No one is asking that question today, and rightly so, because that would be foolish, that would put us in a position of taking a recovery which is finally taking hold and basically pulling the rug out from under it.”

According to the Office for National Statistics, employment rose by 177,000 in the three months to September, while the number of jobless fell by 48,000. But Mr Carney emphasised today that many people who are in jobs want to work more hours, indicating there remains plenty of slack in the economy.

THE DAY IN NUMBERS

1.6%: Bank’s growth forecast for this year

2.8%: Bank’s growth forecast  for 2014

7.6%: The present jobless rate

News
people

Actress sees off speculation about her appearance in an amazing way

Arts and Entertainment
The last great picture - Winner 'Black and White' and overall 'Wildlife Photographer of the Year'
art
Voices
'Irritatingly Disneyfied': fashion vlogger Zoella
voices

News
Carl Bernstein (left) and Bob Woodward (right) with former 'Washington Post' executive editor Ben Bradlee
people

The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech

Board creates magnetic field to achieve lift

News
There have been various incidents of social media users inadvertently flouting the law
news

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London