News

After less than six months, the Bank of England's Governor has abandoned using a simple 7% unemployment target as a precondition for considering an interest rate rise, because the UK economy is doing  so much better than expected and the unemployment rate is already very close to the 7% level - two years ahead of earlier expectations.

The Bank will now consider a range of economic indicators, publishing for the first time its main forecast assumptions, including unemployment, growth, inflation and an estimate of spare capacity, or slack, in the economy. The overall effect is certainly more complex than an easy-to-understand unemployment target; however, it is arguably very transparent.

By communicating on a range of variables and by emphasising the benign inflation outlook, we believe the Bank wishes to reassure the markets that UK interest rates are unlikely to rise before the second quarter of 2015, and that once they do rise, the pace will be very gradual. In this way, the Bank hopes to lay a foundation for recovery in business investment and to achieve the 'sustainable economic growth' that Mr Carney cannot yet positively confirm.