In a significant speech, Bank of England governor Mark Carney has said that a “renewed recovery” is taking hold in the UK, but it will be “more measured than rapid” and interest rates are set to stay low.
Carney said that the Bank was “removing uncertainty” with its assurance that interest rates will remain low until the unemployment rate has fallen to 7%. After previously predicting that this decrease from the current level of 7.8% would take three years - and the creation of 750,000 jobs - Carney today said that there was just a one in three chance of reaching the target by mid 2015.
However, Carney also pointed out that this target should not be seen as an instant fix, stating:
"The 7% threshold is a staging post to assess the economy. Nobody should assume that it's a trigger for raising interest rates."
He also clarified that job creation is not necessarily the only way to boost the economy; he added that there is scope for the economy to grow through “increase in output per hour worked rather than new job creation.”
Carney gave his speech in Nottingham, hometown of singer Jake Bugg. In an unlikely analogy, the governor compared the singer to the UK’s productivity:
“The UK is no more productive than it was back in 2005 - before Jake Bugg got his first guitar and since then...he's had a number one record and a string of very successful gigs. He's become a lot more productive.”
In his speech, Carney acknowledged that interest rates staying low will make things difficult for savers, with whom he has “tremendous sympathy”, adding that “what savers need is what we all need, a stronger economy”.
Reactions to the speech varied. Simon Walker, from the Institute of Directors, welcomed Carney’s speech:
“The Governor's speech was detailed, measured and, most of all, it was reassuring.”
“Businesses will take comfort from his commitment to low interest rates and his confidence in the nature of the economic recovery.”
However others were sceptical. Kathleen Brooks of Forex.com said:
“Carney is trying to tick every box, and the market is questioning whether he can deliver everything at the same time.” adding that “Carney's problem going forward may be credibility.”