Bank of England Governor Mark Carney warns economy has yet to reach ‘ultimate goal’ of expansion

Bank forecasts that the number out of work will continue to fall during 2014

Economics Editor

Interest rates are set to remain at record lows this year despite strong growth and further falls in unemployment, the Bank of England has signalled.

The news is likely to bolster consumer confidence and ease concerns of mortgage holders about an impending rise in the cost of their borrowing.

The Governor Mark Carney insisted at the Bank’s regular inflation press conference that the economy is not yet mended, despite the fact GDP is now close to making up the ground it lost in the 2008-09 recession. “Amidst the excitement that output is close to regaining its pre-crisis level we should not forget that the economy has only just begun to head back towards normal” he said.

Likening the state of the economy to this summer’s football World Cup, Mr Carney added: “Securing the recovery is like making it through the qualifying rounds… that is an achievement but not the ultimate goal”. He said the prize was “a strong, sustained and balanced expansion”.

The Bank has said its decision over when to raise interest rates from their present floor of 0.5 per cent will depend on the amount of “spare capacity” in the economy as measured by various measures of slack in the labour market. The Office for National Statistics (ONS) reported that unemployment declined by a further 133,000 in the three months to March, down to 6.8 per cent. But the Bank stressed that it still saw spare capacity of between 1 and 1.5 per cent of GDP, unchanged since its last report. The Bank now expects the jobless figure to fall to 6.6 per cent by the end of the year.

Before the report, markets were pricing in the first rate rise for March 2015 and a growing number of analysts had been speculating that stronger-than-expected growth would necessitate an increase later this year.

But after the press conference traders pushed the expected date for the rate rise back to April 2015. The value of the pound also fell against the US dollar as markets responded to the Bank’s dovish message on the cost of borrowing. Sterling was also driven lower by a warning from the Governor that the “persistent strength” of the currency risked unbalancing the recovery.

Mr Carney conceded that the day when interest rates will need to rise to contain the threat of inflation had “edged closer” since its last report in February, but he refused to comment on whether market expectations of the timing of the first hike were justified.

The ONS also reported that real wages finally grew in March, with average total pay rising by 1.7 per cent in the three months to March. This was higher than consumer price inflation in that month of 1.6 per cent.

However, the news on earnings came as something of a disappointment since the figure was below most expectations of a 2.1 per cent rise.

The ONS’s breakdown of the jobs figures also showed that half of the 722,000 new jobs in the past year have been self-employed positions.

The Bank of England’s Monetary Policy Committee has been debating whether the rise in self-employment – which now accounts for 15 per cent of all employment – represents disguised unemployment and thus should be treated as another manifestation of slack in the economy.

The Bank’s overall growth forecast for 2014 was unchanged on its last forecast in February at 3.4 per cent. However, it upgraded its 2015 growth forecast from 2.7 per cent to 2.9 per cent.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Ashdown Group: Marketing Assistant - Financial Services Sector - London

£20400 per annum: Ashdown Group: An established and highly reputable organisat...

Recruitment Genius: Financial Services Graduate Training Scheme

£20000 - £100000 per annum: Recruitment Genius: We are a successful and establ...

Day In a Page

War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future
Berlusconi's world of sleaze: The astonishing lifestyle once enjoyed by Italy's former PM

Berlusconi's world of sleaze

The astonishing lifestyle once enjoyed by Italy's former PM
Disney plans galactic domination with endless Star Wars spin-offs

Disney plans galactic domination with endless Star Wars spin-offs

Films and theme parks are just the beginning. Disney believes its control of the now decades-old franchise can bring in merchandise and marketing millions for years to come
Could the golden age of the gaming arcade ever be revived in the era of the Xbox?

Could gaming arcades be revived?

The days when coin-ops were the only way to play the latest video games are gone. But a small band of enthusiasts are keeping the button-pushing dream alive
Edinburgh Fringe 2015: The 'tampon tax' has inspired a new wave of female comedians to reclaim period jokes

Heard the one about menstruation?

Yes, if you have been at the Fringe, where period pieces are taking centre stage