THE BANK of England’s interest rate-setting committee voted unanimously this month to keep the rate at its historic low, while emphasising that it may not tighten policy even when unemployment falls below the seven per cent threshold.
Governor Mark Carney introduced forward guidance this summer, saying that the Bank does not intend to lift rates until the jobless level sinks at least as low as seven per cent.
Yet as the recovery picks up pace, the Bank is keen to stress that it may keep holding rates down regardless.
“There could be a case for not raising Bank rate immediately when the seven per cent unemployment threshold was reached,” the Bank’s monetary policy committee (MPC) said in the minutes of its November meeting.
“Once unemployment had reached seven per cent, the committee would reassess what it had learned about the nature of the recovery.”
The MPC said that holding rates down would be on the proviso that “medium-term inflation expectations remained sufficiently well anchored”.
The nine-man MPC voted, without dissent, to hold Bank rate at 0.5 per cent and to keep its holdings of asset-purchases – a process known as quantitative easing – at £375bn.
The Bank’s senior officials are keen to convince market participators that policy normalisation is not imminent, despite their own forecasts showing that unemployment could drop to seven per cent or below next year.
“MPC members were once again at pains to highlight that the fall in the unemployment rate will not trigger an automatic rate rise, under the pretext that the economy has still not returned to ‘normal’, but financial markets are unlikely to be convinced,” said EY Item Club economist Nida Ali.
Senior policymakers such as Carney, as well as Charlie Bean and Martin Weale, have said they cannot rule out lowering the level of the threshold.