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Davos: Carney rules out rate rise

Ryan Fowler

January 24, 2014

Carney told BBC’s Newsnight that there is “no immediate need to increase interest rates”.

The governor’s statement followed the announcement that the jobless rate had fallen to 7.1%, close to the 7% at which he said he would consider a rise.

He said: “It’s really about overall conditions in the labour market, and that’s what affects it.

“We wouldn’t want to detract from that focus… by unnecessarily focussing too much on one indicator.”

But Carney also insisted that the British economy remains well short of achieving “escape velocity” from the recession.

In a speech to business leaders in Davos, he said the Bank’s monetary policy committee would reassess its forward guidance strategy following the fall in unemployment in recent months.

But he hinted that he currently favoured updating rather than scrapping his flagship policy initiative and pledged that the degree of stimulus would “remain exceptional for some time”.

He said: “That should help reassure British business that the path of interest rates will be consistent with a sustained recovery – that is, with escape velocity.

“A few quarters of above-trend growth driven by household spending represent a good start, but they aren’t sufficient.

“It will take sustained growth, more balanced demand and a recovery in the supply side for advanced economies to break free into a more normal universe.”

But the governor conceded that there had been encouraging signs, with the UK and the US leading the way among developed countries and the eurozone at showing signs of life.

He cautioned: “None of this is to suggest that current levels of economic activity are acceptable or that the world economy is no longer under strain.

“After the Great Moderation and the Great Recession, there are several reasons why it will be years before any superlatives are attached to this recovery.”


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