Carney clarifies UK interest rate guidance

The Bank of England's new governor took his ideas for spurring Britain's sluggish economy on the road Wednesday, travelling to the heart of the country to convince households and managers that interest rates will remain low and that he won't follow the United States in reining in the bank's stimulus efforts just yet.

"The knowledge that interest rates will stay low until the recovery is well established should give greater confidence to households to spend responsibly, and businesses to invest wisely," said Mark Carney.

Carney's main act since taking the helm at the start of July has been to introduce an element of "forward guidance" to the bank's monetary policy.

However, Carney's initial guidance earlier this month generated some unwanted uncertainty.

On August 1, the governor said the United Kingdom's benchmark rate would remain at a record-low 0.5 per cent until unemployment fell from the current 7.8 per cent to 7 per cent - for about three years. Many economists thought the unemployment threshold introduced meant interest rates may actually end up rising far sooner than expected and Britain's borrowing rates in the markets rose.

sustainable growth

In his speech at the University of Nottingham, Carney went further. The seven per cent threshold would not necessarily trigger an interest rate rise. The bank won't raise interest rates until "jobs, incomes and spending are recovering at a sustainable pace," he insisted.

"The Bank of England's task now is to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth," he said. "We aim to get there in part by reducing the uncertainty that has held back growth."

Carney spoke in simple language, ignoring the qualifications and 'knockouts' that helped obscure the guidance he made on August 1 that made analysts wary.

- AP