Bank of England will keep the key interest rate at a record low at least until the unemployment rate will drop to 7%. This threshold will not be reached in the next three years, according to institution’s forecast. The interest rate charged by the Bank of England is at 0.5% since 2009. UK unemployment rate for June is 7.7%, below the European Union average of 10.9%, and the euro area, at 12.1%, according to Eurostat. The decision represents a major change of direction for the Bank of England’s monetary policy, one month after taking office as governor by Mark Carney, a former head of the Bank of Canada.
Governor Mark Carney is the first foreign national brought to the management of the Bank of England, mandated to adopt a more aggressive monetary policy in support of economic growth. The Bank of England pledged Wednesday to hold key interest rate at 0.5 percent until unemployment is down to 7% if inflation does not threaten to spiral out of control and there is no risk to the stability of the financial system, according to The Guardian.
Mark Carney said that the UK is still in recovery after an unprecedented financial crisis; high unemployment is the most important sign that the economy still needs support. The governor said the central bank may choose in the future to expand the program to stimulate the economy by pumping money (quantitative easing), and the scheme will not be reduced below the current ceiling of 375 billion pounds until unemployment does not reach 7%.
The Bank of England official added that unemployment decrease to 7% would mean the creation of 750,000 new jobs in the UK. The nomination of Mark Carney at the helm of Bank of England is a major change from the politics during his predecessor, Mervyn A. King who didn’t share inside information about the thinking of the central bank.
The central bank in London said that the recovery of the economy began to be felt, and inflation is anticipated to remain above the 2% target until the second half of 2015.
Reply