GOVERNOR Mark Carney fought off suggestions that the Bank of England should hike interest rates yesterday, as his flagship scheme for monetary policy came under threat after only six months.
There is “no immediate need to increase interest rates,” Carney said last night, speaking on the BBC’s Newsnight programme.
The Bank governor also tried to pedal back from the unemployment threshold, set out in its forward guidance policy, which was only issued in August last year
Under the programme, the Bank’s monetary policy committee (MPC) pledged to reassess the UK’s ultra-low interest rates when unemployment fell to seven per cent, which they originally forecast to happen in the middle of 2016.
However, shock statistics released this week showed that unemployment plunged to 7.1 per cent in November, the biggest fall in over 15 years, putting the forward guidance policy in jeopardy.
Carney said: “People understand is that it’s really about overall conditions in the labour market, overall amount of slack in companies.”
He added: “We wouldn’t want to detract from that focus... by unnecessarily focusing too much on just one indicator,” hinting that guidance would start to take a broader view.
Asked if the threshold for forward guidance would be cut to 6.5 per cent, Carney continued: “I wouldn’t jump to that conclusion.”
The governor also confirmed that February’s Inflation Report would assess the arguments for and against higher interest rates.
Similar signs that the Bank is preparing the ground to significantly alter the policy came from Paul Fisher, another member of the Bank’s MPC, who was speaking at an event earlier in the day.
“The implied productivity performance of the UK economy has, in fact, remained poor- according to the official statistics, output simply doesn’t appear to be growing fast enough to support the employment growth recorded as well as generate the rapidly rising real incomes one would like to see,” he said. Fisher’s comments suggest that any formal tweaks to forward guidance may include thresholds on wages or productivity, as predicted by many analysts this week.