Bank of England Governor Mark Carney has hinted interest rates should in theory rise next spring – but says the Bank has “no pre-set course” in mind.
He made the comments in his speech to the Trades Union Congress, delivered earlier today in Liverpool.
While he wouldn’t give a firm timetable Carney did say the Bank was watching several data sets closely in making its decisions – particularly wage levels.
He said the Bank’s latest forecast expects real wage growth to resume mid-2015 and then to accelerate as the unemployment rate falls to around 5.5 per cent over the next three years.
“Our latest forecasts show that, if interest rates were to follow the path expected by markets – that is, beginning to increase by the spring and thereafter rising very gradually – inflation would settle at around 2 per cent by the end of the forecast and a further 1.2 million jobs would have been created.”
If that happened the Bank would have met its mandate, he said.
But he reiterated that “the precise timing of the first rate rise is less important than our expectation that, when rates do begin to rise, those increases are likely to be gradual and limited.
“Rates will go up only as far and as fast as is consistent with price stability as part of a durable expansion, with the maximum sustainable level of employment.”
He also said that Bank monetary policy – particularly the much-maligned forward guidance – had been successful in giving households and businesses confidence that interest rates would not suddenly climb.
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