Carney Says No Immediate Need for BOE to Increase RatesScott Hamilton
Bank of England Governor Mark Carney said there’s “no immediate need” to increase borrowing costs and indicated a debate has begun on forward guidance after U.K. unemployment fell faster than anticipated.
Asked if the BOE will lower the 7 percent jobless threshold that’s linked to borrowing costs, Carney told the BBC there are “a broad range of things we could do, I wouldn’t jump to that conclusion. He said any decision will be made by the entire nine-member Monetary Policy Committee and they will review guidance next month.
The comments came a day after data showed unemployment fell to 7.1 percent, just above the level the MPC has said will prompt it to review its record-low benchmark interest rate. While some economists have forecast that the committee will lower that threshold, Carney indicated there are a number of options and that less importance may be attached to the jobless rate in future policy decisions.
‘‘What we’re trying to get across, and I think people understand, is that it’s really about overall conditions in the labor market, overall amount of slack in companies,” Carney said in the BBC interview yesterday in Davos, Switzerland. He said the MPC “wouldn’t want to detract from that focus” by “unnecessarily focusing too much on one indicator.”
The governor also said that the MPC will review guidance in February, when it publishes its quarterly Inflation Report and new economic forecasts.
Chancellor of the Exchequer George Osborne backed Carney when asked about guidance at an event at Davos today. He said unemployment is falling because of BOE and government policy and that this is a mark of success. He said he “completely rejects” the idea that guidance is a failure.
Carney is due to speak at an event in Davos later today hosted by the Confederation of British Industry, the U.K.’s biggest business lobby. He will take part in a panel discussion tomorrow on the global economic outlook for 2014.
Emphasizing that it’s not time to begin raising the key interest rate from 0.5 percent, Carney said yesterday that headwinds to the recovery will persist for some time.
“The worst of the crisis is behind us, but the aftermath of the crisis is very much with us. In a number of our economies, including the U.K., the financial system isn’t fully repaired,” he said. “We have, quite understandably, a great deal of uncertainty out there among households, individuals and businesses that are preventing particularly investment.”
His remarks that tighter policy isn’t yet required repeat comments made in the past two days by fellow MPC members Paul Fisher and Ian McCafferty. It also echoes language used in the minutes of the BOE’s January meeting published this week. Officials are seeking to underscore their view that they should keep their key rate unchanged to shore up the recovery.
“We are still some way off the point where it is appropriate to start raising bank rate,” Fisher said in a speech in London. “When it is time, it would be appropriate to do so only gradually.”