Bank of England set to embrace forward guidance

The Bank of England has tied future interest rate rises to a fall in unemployment, governor Mark Carney announced in his first Inflation Report.

Carney (picutred) also said that the Bank of England could still launch more quantitative easing if needed, and it does not expect to unwind QE until the unemployment rate hits the 7% threshold.

The Bank of England has tied future interest rates to unemployment levels and said they will remain low until the jobless rate hits 7% – down from the current official rate of 7.8%.

A fall of that size would mean another 750,000 new jobs for the nation, Carney added.

As Reuters pointed out, a month after Carney took over from the long-serving Mervyn King as BoE governor, the central bank said that it would keep interest rates at 0.5% unless inflation threatened to get out of control or there was a danger to financial stability

“Until the margin of slack within the economy has narrowed significantly, it will be appropriate to maintain the current exceptionally stimulative stance of monetary policy,” the BoE said.

BoE policymakers said they stood ready to buy more government bonds if additional stimulus was needed and would not reverse existing purchases while unemployment was too high, Reuters also reported.

Click here to read the full Inflation Report.

Click here to read the BoE statement on forward guidance.


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