Davos 2014: Mark Carney pours cold water on odds of imminent rise in interest rates

 

Davos

The Bank of England’s flagship policy of forward guidance on interest rates will “evolve” next month, Mark Carney said yesterday, as he sought again to dampen expectations of an imminent rate rise.

Speaking to the CBI at the World Economic Forum in Davos, Switzerland, the Governor confirmed that the policy would be assessed by the Bank’s Monetary Policy Committee next month and that policymakers would consider “a range of options to update our guidance”.

However, he added that “the degree of stimulus will remain exceptional for some time” and that when the time did come to put up rates, the rises would only be “gradual”. Mr Carney said: “That should help reassure British business that the path of interest rates will be consistent with a sustained recovery.”

He also suggested that rates would remain below “historical norms” for the “medium term”, the first time the Bank has laid out its thinking on monetary policy over such an extended timeframe.

Under the Bank’s original forward guidance, which was unveiled when Mr Carney became Governor last summer, Threadneedle Street pledged to hold rates down until unemployment fell to 7 per cent, something it did not expect to occur until 2016. But the jobless rate has fallen much more rapidly, dropping to 7.1 per cent in the most recent figures, and putting a hike into play.

Mr Carney suggested the Bank is likely to take into account a wider range of labour market indicators in setting policy, as well as the jobless rate. This could include the proportion of people who want to work more hours. He noted yesterday that the number of people who are in involuntary part-time work was still high.

Some have speculated that the Bank might decide to lower its unemployment threshold to 6.5 per cent. But that idea was criticised by an external member of the MPC, Martin Weale, yesterday. In a newspaper interview Mr Weale said that a lower threshold could be similarly overtaken by events. “I do not feel terribly enthusiastic about a reduction from 7 per cent to 6.5 per cent. The purpose of forward guidance was to create greater certainty,” he said.

Despite the Bank’s claim that forward guidance will merely evolve, some in the City have concluded that the policy has effectively been dropped. “UK unemployment is no longer central to the BoE’s forward policy guidance, but a balanced and sustainable recovery is,” said Lena Komileva of G+ Economics.

But George Osborne, also in Davos, vigorously defended the Bank from criticism that its original policy had failed, insisting that the prospect of an earlier-than-expected interest rate hike was a “mark of success” for the UK’s economic policy. “I completely reject that forward guidance has failed,” said the Chancellor. “We’re talking about exit. That in itself is a mark of success. We’re only having this discussion because there is a recovery under way.”

In a sideswipe at critics of his austerity fiscal policies Mr Osborne added: “Monetary policy works and [has] confounded those who said it was never going to work and that we needed other things.”

Elsewhere in Davos yesterday the managing director of the International Monetary Fund, Christine Lagarde, warned against a mood of complacency from policymakers and financiers over the international economy.

Start your day with The Independent, sign up for daily news emails
News
Young Winstone: His ‘tough-guy’ image is a misconception
people
Sport
Adnan Januzaj and Gareth Bale
footballManchester United set to loan out Januzaj to make room for Bale - if a move for the Welshman firms up
Arts and Entertainment
Ellie Levenson’s The Election book demystifies politics for children
bookNew children's book primes the next generation for politics
News
Outspoken: Alexander Fury, John Rentoul, Ellen E Jones and Katy Guest
newsFrom the Scottish referendum to the Ice Bucket Challenge, our writers voice their opinions
PROMOTED VIDEO
News
i100
Sport
Yaya Sanogo, Mats Hummels, Troy Deeney and Adnan Januzaj
footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
Arts and Entertainment
L to R: Hawkeye (Jeremy Renner), Captain America (Chris Evans) & Black Widow (Scarlett Johansson) in Avengers Assemble
film
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
Arts and Entertainment
Pharrell Williams' “Happy” was the most searched-for song lyric of 2014
musicThe power of song never greater, according to our internet searches
Sport
Tim Sherwood raises his hand after the 1-0 victory over Stoke
footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Sink the Pink's 2013 New Year's Eve party
musicFour of Britain's top DJs give their verdict on how to party into 2015
Voices
Strictly Come Dancing was watched by 6.9m viewers
voicesIt has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Arts and Entertainment
Roffey says: 'All of us carry shame and taboo around about our sexuality. But I was determined not to let shame stop me writing my memoir.'
books
News
i100
News
Caplan says of Jacobs: 'She is a very collaborative director, and gives actors a lot of freedom. She makes things happen.'
people
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

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?
Finally, a diet that works: Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced

Finally, a diet that works

Californian pastor's wildly popular Daniel Plan has seen his congregation greatly reduced
Say it with... lyrics: The power of song was never greater, according to our internet searches

Say it with... lyrics

The power of song was never greater, according to our internet searches
Professor Danielle George: On a mission to bring back the art of 'thinkering'

The joys of 'thinkering'

Professor Danielle George on why we have to nurture tomorrow's scientists today
Monique Roffey: The author on father figures, the nation's narcissism and New Year reflections

Monique Roffey interview

The author on father figures, the nation's narcissism and New Year reflections
Introducing my anti-heroes of 2014

Introducing my anti-heroes of 2014

Their outrageousness and originality makes the world a bit more interesting, says Ellen E Jones
DJ Taylor: Good taste? It's all a matter of timing...

Good taste? It's all a matter of timing...

It has been hard to form generally accepted cultural standards since the middle of the 19th century – and the disintegration is only going to accelerate, says DJ Taylor
Olivia Jacobs & Ben Caplan: 'Ben thought the play was called 'Christian Love'. It was 'Christie in Love' - about a necrophiliac serial killer'

How we met

Olivia Jacobs and Ben Caplan
Bill Granger recipes: Our chef's breakfasts will revitalise you in time for the New Year

Bill Granger's healthy breakfasts

Our chef's healthy recipes are perfect if you've overindulged during the festive season
Transfer guide: From Arsenal to West Ham - what does your club need in the January transfer window?

Who does your club need in the transfer window?

Most Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
The Last Word: From aliens at FA to yak’s milk in the Tour, here’s to 2015

Michael Calvin's Last Word

From aliens at FA to yak’s milk in the Tour, here’s to 2015