Mark Carney defends Bank of England's forward guidance policy


Governor Mark Carney defended the Bank of England's radical new forward guidance policy today, insisting it has “reinforced the recovery”.

Mr Carney told MPs the new strategy of linking interest rate rises to unemployment has given households and businesses greater "certainty and clarity".

And he told the Treasury Select Committee the Bank remains "vigilant" over a house price bubble, as prices and demand are pumped up by Government stimulus schemes. It could recommend banks set limits on how much households can borrow, he said.

The Bank revealed a new strategy of pinning rate rises to unemployment last month. It will not consider lifting rates from their record 0.5% low until unemployment has dropped to 7%, unless there are fears of a sharp spike in price rises.

The Bank expects this to take around three years, but sterling and the cost of Government borrowing have risen sharply in recent weeks as markets expect the jobless total to fall more sharply.

Mr Carney said: "Overall, my view is that the announcement has reinforced recovery."

He added: "There has been a change in the pace of activity without a question. This is welcome but we should not be satisfied with it."

Under intense questioning by MPs during a two-hour session, the former governor of the Bank of Canada repeatedly stressed that the Bank is firmly tied to its key target of keeping inflation at 2%.

But he said: "I'm not afraid to raise interest rates. I raised interest rates in Canada.

"I have not an issue with doing that if it's appropriate."

Mr Carney said the Bank's new forward guidance message has been well understood by households and business.

"When the economy is really growing, when the economy can withstand a tightening of monetary policy - that's when we will be taking action," he said.

He added while there are encouraging signs from the economy, the Bank could add to its £375 billion quantitative easing programme if Britain suffers a relapse.

Mr Carney, who was flanked by fellow Monetary Policy Committee members Paul Fisher, Ian McCafferty and David Miles, said he has "tremendous sympathy" for savers who continue to be hit by record low rates, and are seeing their nest eggs eroded by inflation.

But he said the Bank's job is to make sure it is not a "false dawn".

"What we are planning to avoid is this stretching into decades as opposed to two to three more years," he said.

David Miles suggested markets have over-reacted to improved output data, which showed the economy growing by 0.7% in the second quarter.

He said: "People may be attaching too much weight to the strong numbers on GDP and thinking unemployment is going to fall back very quickly."

Mr Carney added the Bank is watching the housing market closely as it recovers - but insisted the market pick-up should be seen in context, and remains a third to a quarter below pre-crisis levels.

He said the Bank could take action on loan-to-value rates so there is not a return to 100% mortgages.

Mr Carney was asked by Conservative MP Mark Garnier if a return to normal interest rates will mean "very significant numbers of households may find themselves pushed into quite strained positions".

Mr Carney replied "Yes. There are a number of households who are in effect in a form of being credit strained because of existing debt burdens."

But he said the Bank must set monetary policy "for the UK as a whole", and cannot target policy at specific parts of the population.

He said: "The challenge will be, as the recovery progresses, to gradually transition at an appropriate pace from a situation of emergency stimulus to a gradual withdrawal of that.

"And to ensure that households who are in a position of taking on additional debt are thinking all the way through the horizon."


Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
ebooksA special investigation by Andy McSmith
Life and Style
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Amazon misled consumers about subscription fees, the ASA has ruled
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
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

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn