Bank of England sees unemployment falling below threshold - but sees scope to keep rates on hold

Mark Carney was always going to have to pull something out of the bag this morning.

The Bank of England governor has been wedged between two forces as the Inflation Report is released.

Having introduced forward guidance, in an attempt to give direction over the path of future policy, the sudden and unexpected fall in unemployment would suggest that the Bank would tighten policy sooner.

Unemployment is now only 0.1 percentage points over the threshold at which the Bank would consider a rate rise. The Bank of England now says that it sees unemployment hitting 6.9 per cent in January.

That's 0.1 percentage points below the seven per cent threshold.

But many point to other problems with the UK's economy, such as ghastly real wage growth, as evidence that rates need to be held lower for longer.

So Carney has had to try and wriggle out of that unemployment based guidance, something that newly instated Fed chair Janet Yellen excelled at yesterday.

The Bank of England now says that it sees scope to keep rates at their historic 0.5 per cent lows after unemployment falls below threshold.

Despite that, Carney has said that "forward guidance is working", and the Bank has ruled out replacing the unemployment threshold with another measure.

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