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Base Rate could stay low till 2017
The governor of the Bank of England has confirmed that the Bank Base Rate won’t rise any time soon.
Mark Carney, who introduced forward guidance on the Bank Base Rate earlier this month, stressed the central bank would not be raising interest rates in the short-term:
“Thinking unemployment will come down faster than we expect isn’t enough to believe interest rates will rise soon. As I said earlier, the 7% threshold is a staging post to assess the economy. Nobody should assume that it is a trigger for raising rates.
“We are not alone in that belief – other major independent forecasters such as the Office for Budget Responsibility and National Institute of Economic and Social Resarch share our view that unemployment will be above 7% in three years’ time.”
He dismissed speculation that the US Federal Reserve’s efforts to wind up quantitative easing would force interest rates up in the UK:
“While much has been made of the special relationship between the US and UK, it is not so special that the possibility of a reduction in the pace of additional stimulus in the US warrants a current reduction in the degree of monetary stimulus in the UK.
“Movements in longer-term market interest rates are certainly relevant, but what matters most to you is what actually happens to Bank Rate, now and in the future. That is because the interest rates on 70% of loans to households and more than 50% of loans to businesses are linked to Bank Rate.
“And it is the Bank of England that controls that rate. We do not intend even to consider raising it before unemployment falls to 7%. When it does reach that point, we will control whether a rise is warranted, taking into account the strength of the recovery and the outlook for inflation.“
The central bank would curb mortgage lending if low interest rates appeared to be stoking a house price bubble, he added.