THE prospect of an early interest rate rise due to the economic recovery has been "taken off the table", The Times reports.
Speaking at the World Economic Forum in Davos, Bank of England governor Mark Carney said there was "no immediate need" to increase rates despite sharper than expected fall in unemployment to 7.1 per cent. Carney added that any shift in rates would be gradual, the paper says.
The governor's words were reinforced yesterday by Paul Fisher, the Bank's executive director for markets, who said that there was "no immediate need" to raise interest rates from the record low of 0.5 per cent.
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In forward guidance issued by the BoE following Carney's appointment it was suggested that the central bank would consider raising interest rates when unemployment reached seven per cent. But in an interview with the BBC's Newsnight programme last night, the governor said the seven per cent threshold was the point at which the bank would "begin to think" about a rise.
"It's really about overall conditions in the labour market, and that's what affects it," Carney told Newsnight host Jeremy Paxman. "We wouldn't want to detract from that focus... by unnecessarily focusing too much on one indicator."
Asked if it was a "problem" that unemployment was falling so much faster than the central bank had predicted, Carney insisted it was not.
"If our forecast is going to be wrong it's better to be wrong in that direction," he said.
Carney also played down the importance of the increased growth forecast from the International Monetary Fund which has sharply upgraded its projection to 2.4 per cent this year, the BBC says. He pointed out that the recovery of the British economy is "coming off a low base" and it had still not recovered its 2008 levels.
"The worst of the crisis is behind us but the financial system is not functioning as well as it could," he said. "Uncertainty among households and businesses is still preventing investment."
