U.K. Prime Minister David Cameron defended Mark Carney after the Bank of England governor said that policy makers will review forward guidance next month.
Carney, who said last year that unemployment would need to fall to 7 percent before the BOE would consider raising interest rates, has seen the jobless rate drop faster than forecast. Today, Carney said policy makers will reassess guidance within weeks as he pledged to maintain exceptionally loose policy for some time to help the recovery.
“To be fair to the governor, he always said that this was a threshold, not a trigger,” Cameron said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland. His latest comments are “consistent with that,” Cameron said.
Cameron and his chancellor of the exchequer, George Osborne, hired Carney from Canada, where he was head of the central bank. Both gave the governor their support today. Osborne told a panel in Davos that he rejected the idea that forward guidance was a failure, and said that falling unemployment vindicated Britain’s economic policy.
“Unemployment is falling very quickly and so people are talking about what comes next,” Osborne said. “It’s a measure of success.”
Britain’s strengthening recovery has allowed Cameron and Osborne to claim their government’s austerity plan is working. The unemployment rate, which was 7.8 percent when Carney took over on July 1, is now at 7.1 percent, just above the juncture at which officials pledged to consider raising borrowing costs.
In a speech in Davos, Carney said today that there isn’t an “immediate need” for the BOE’s Monetary Policy Committee to raise its benchmark interest rate once the jobless threshold is reached. The MPC will consider a “range of options” for updating guidance next month, he said.
“Even though unemployment is falling faster than expected, the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy,” Carney said.
The governor added that when policy makers do begin tightening, any moves will be “gradual.” Borrowing costs in the medium term may not return to levels seen prior to the financial crisis in 2008, he said.
Asked about whether an interest-rate increase would signal a recovery is under way, Cameron said rate decisions were a matter for the central bank. “I remember the days when politicians meddled in interest-rate decisions,” he said. “I never want to go there again. The government’s responsibility is to deal with our deficit and debts to keep pressure on interest rates down. We’re fulfilling that responsibility but we must continue to do so.”
Cameron said Britain is seeing “good economic growth” and that his focus is on spreading the benefits.
“It’s absolutely vital that this is a recovery for all of the country,” he said. “The fastest growth in jobs outside London and the southeast has been in Yorkshire and the Humberside, so there are good signs of progress.”