Bank of England Governor Mark Carney said Wednesday the U.K.'s central bank will not consider increasing its record-low interest rate or scaling back its bond-purchasing program until unemployment falls below 7 percent.
Carney, delivering his first quarterly inflation report since he became governor, issued "forward guidance" on interest rates — currently at 0.5 percent — to avoid "unwarranted...expectations."
The 48-year-old former governor of the Bank of Canada stressed to reporters that if unemployment falls to 7 percent from the current 7.8 percent — which is not expected to happen until 2016 — it would not automatically trigger an increase in interest rates but would be a "waystation" to reassess bank policy.
By giving an indication that interest rates could stay low — possibly for several years — businesses and families will get a clearer picture of what it would cost to borrow and therefore would be encouraged to take out loans and mortgages, which in turn would help stimulate the economy.
The Bank of England joins the U.S. Federal Reserve and the European Central Bank in providing guidance on their interest rate policies.
Carney also said the bank would not scale back its 375 billion pound bond-buying program while unemployment remains about 7 percent.
The BOE warned, however, that it would break the link between rates and unemployment if it fears inflation will climb sharply in the medium term.
Saying that "a renewed recovery is now under way" but that the UK economy has not yet reached "escape velocity," Carney also downgraded inflation forecasts by saying the bank does not expect inflation to rise above 3 percent this year.
Carney took office July 1, becoming the first non-Briton to run the bank in its 319-year history.
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