Mark Carney tells City he will stick by vow to keep interest rates rock bottom
Bank's Governor warns markets against tightening economy's financial conditions
The Governor of the Bank of England, Mark Carney, yesterday warned financial markets not to doubt the sincerity of his pledge to keep interest rates at rock bottom until 2016 in order to support the recovery.
Since the Bank of England unveiled its historic "forward guidance" pledge on rates earlier this month, traders have defied Threadneedle Street by bringing forward their estimate of when the first rise in the Bank rate will occur to the middle of 2015, effectively tightening financial conditions across the economy. But, delivering his first speech as Governor in Nottingham, Mr Carney said that if markets continued to tighten in this way the Bank would be prepared to enact more monetary stimulus.
"If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further," he said.
The Governor refused to specify what particular measures would be considered, but they would be likely to include a restarting of the £375bn quantitative easing programme.
However, despite the Governor's warning, markets failed to push back their expected date for the first Bank rate increase. Sterling, after initially dropping, also ended higher against the dollar, belying Mr Carney's dovish message on rates.
On 7 August the Bank of England's Monetary Policy Committee pledged that it would keep interest rates at 0.5 per cent until the unemployment rate falls from its present level of 7.8 per cent to at least 7 per cent, something it does not anticipate taking place until the second half of 2016. This guidance would cease to hold if inflation expectations rose, or if there was a threat to financial stability.
The Governor yesterday conceded that one of the reasons financial markets might be pricing in an earlier rise in policy rates is that traders think the unemployment rate will fall to the 7 per cent target more quickly than the Bank. Mr Carney said that, while hitting the jobless target early would be welcome, "policy is built not on hope, but expectation".
He added that there was only a one in three chance of the 7 per cent target being hit in mid 2015, when markets are currently pricing in the first rate rise.
The Bank believes the UK's productivity – output per hour worked – will gradually pick up as the economy returns to growth, limiting the pace of job creation over the next three years.
Mr Carney noted that the level of UK productivity is today no higher than it was in 2005 – and in a reference to the Nottingham-born singer-songwriter he added that this was "before Jake Bugg got his first guitar".
Cementing his dovish message on rates, the Governor reiterated that the 7 per cent target was merely a "staging post" and that reaching it would not result in an automatic rise in rates.
Mr Carney downplayed fears that the UK is witnessing the beginning of a new housing market bubble, pumped up by the Chancellor's home-buying mortgage subsidies.
However, he added that the Bank "is acutely aware of the risk of unsustainable credit and house-price growth and will be monitoring it closely".
Sales of the tablet are set to fall again, say analysts
Met Police confirm there was a 'minor disturbance' and that no-one was arrested
George Lucas criticises the major Hollywood film studios
Does Chris Grayling realise what a vague concept he is dealing with?
Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets
Parties threaten resort's image as a family destination
I Am Bread could actually be a challenging and nuanced title
- 1 Indian footballer Peter Biaksangzuala dies after injuring spine doing somersault celebration
- 2 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 3 Drink alcohol and eat meat to improve male fertility - but cut down on coffee, studies suggest
- 4 Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
- 5 Lynda Bellingham dead: Loose Women presenter dies after battle with colon cancer
Banksy arrest hoax: Internet duped by fake report claiming that the street artist's identity has been revealed
'Russian submarine spotted' by Swedish military off coast of Stockholm
Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
Hurricane Gonzalo: When will it hit the UK and how strong will it be?
Oscar Pistorius sentence: Athlete's wealth and notoriety provoke an overdue debate on South African prisons
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Sorry Judy Finnigan – Ched Evans is no less sickening than an alleyway rapist
Residents should throw a street party and mix with immigrant neighbours, councils told
Workers 'could be forced to pay £5 a week' to get benefits
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver allegedly kicks gay couple off for kissing
iJobs Money & Business
£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...
£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....
£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...
£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...