Buy to Let
Interest rates to stay at 0.5% until unemployment drops
The Bank of England has said it will not raise the base rate of interest before unemployment falls to 7%.
In its quarterly inflation report, the Bank unveiled plans to tie interest rates to the unemployment rate, but added its new ‘forward guidance’ to the market is not unconditional.
The 7% mark represents the point at which the BoE will “reassess” its interest rate policy, Governor Mark Carney (pictured) said this morning.
The current unemployment rate is 7.8%.
Carney said guidance was also dependent on inflation remaining within 0.5 percentage points of the 2% target on a two-year horizon.
The governor added investors’ rate expectations are still out of sync with the Bank’s own.
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“The path of market interest rates implies faster withdrawal of monetary stimulus than appears likely given current output,” he said in a press conference this morning, echoing comments made by the BoE earlier this summer.
The Bank’s median forecast for unemployment in two years’ time is currently 7.3%, according to today’s inflation report, but Carney said longer-term forecasts are still uncertain.
“Unemployment is as likely to reach 7% threshold beyond [a] three-year horizon as before,” Carney said.