Mark Carney's flagship forward guidance policy was backed by the International Monetary Fund today as the Bank of England Governor marked 100 days at the helm in Threadneedle Street.
The IMF's latest World Economic Outlook, which raised its UK growth forecasts sharply from 0.9% to 1.4% for this year, said the Bank's recently adopted framework "is an important step toward greater transparency about the factors that will guide policy rates".
Under the regime, the Bank's monetary policy committee will not consider raising interest rates from their current 0.5% record low until the jobless rate falls to 7%, subject to caveats on inflation and financial stability.
Rate-setters have been on a drive to clarify the policy in recent weeks with speeches and interviews amid initial scepticism from financial markets, which believe unemployment will fall more quickly to the 7% threshold than the Bank's forecasts of mid-2016.
The IMF, headed by Christine Lagarde said UK monetary policy should "remain accommodative" as the economy still lingers 3.3% below the high-water mark in the first quarter of 2008, according to the Office for National Statistics. The report said: "In the UK, recent data have shown welcome signs of an improving economy, consistent with increasing consumer and business confidence, but output remains well below its pre-crisis peak."
The IMF also said the world economy had entered "yet another period of transition" as it lowered its global growth forecasts from 3.2% to 2.9%. It warned of the "combination of slower growth and tighter financial conditions" in emerging market economies, triggered by the prospect of slowing stimulus in the US. It also forecast "some volatility" in long-term interest rates as the US Federal Reserve faces "new and delicate" communication problems in pulling back from emergency policy settings.
The IMF said the US economy - expected to grow 2.6% this year - was at risk from the long-running row over the debt ceiling which raises the prospect of a potential default on October 17.
"Conflicts around increasing the debt ceiling could lead to another bout of destabilising uncertainty and lower growth," it warned.
The IMF added that the European Central Bank could be forced to take further action to prop up the fragile recovery in the eurozone, saying: "Old problems - a fragmented financial system in the euro area and worrisomely high public debt in all major advanced economies - remain unresolved and could trigger new crises."
It said that the ECB should consider a range of stimulus including lower interest rates, extended loans to banks, negative deposit rates for banks or other "unconventional measures", potentially more QE.
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