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".

Suggested Topics
News
Alan Bennett has criticised the “repellent” reality shows which dominate our screens
tvBut he does like Stewart Lee
Life and Style
The Google Doodle celebrating the start of the first day of autumn, 2014.
tech
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Sport
David Moyes and Louis van Gaal
football
PROMOTED VIDEO
News
i100
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
News
Former Governor of Alaska Sarah Palin, left, with her daughter, Bristol
newsShe's 'proud' of eldest daughter, who 'punched host in the face'
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
Life and Style
Carol O'Brien, whose son Rob suffered many years of depression
healthOne mother's story of how London charity Maytree helped her son with his depression
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Life and Style
food + drink
News
Rob Merrick's Lobby Journalists were playing Ed Balls' Labour Party MPs. The match is an annual event which takes place ahead of the opening of the party conference
newsRob Merrick insistes 'Ed will be hurting much more than me'
News
A cabin crew member photographed the devastation after one flight
news
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
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

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Quantitative Risk Manager

Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits