Carney says BOE won't rush to raise rates as labor slack remains
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LONDON — Bank of England Governor Mark Carney said there's plenty of spare capacity in the labor market, as he repeated that officials won't rush to raise interest rates even if the jobless rate reaches their 7 percent threshold.
"There's a lot of slack," Carney told lawmakers of Parliament's Treasury Committee in London Tuesday. "The good news is, because we're having the recovery, that slack starts to be taken up," though "7 percent is a threshold" and not a trigger for an interest-rate increase, he said.
The Monetary Policy Committee agreed this month that record-low borrowing costs may be needed even after unemployment falls to the threshold set under forward guidance. Carney said Tuesday that there is no confusion among businesses he has spoken with about forward guidance, and they don't expect an immediate tightening of policy.
Guidance is "giving businesses, households, financial market participants, parliamentarians, perspective on conditions necessary in an economy before the MPC would start tightening monetary policy," Carney said. "We don't see this confusion. We are seeing strong growth. We are not seeing an adjustment in short-term expectations of interest-rate moves."
Under its forward guidance policy, the MPC has said it won't consider raising its key rate from 0.5 percent at least until joblessness hits 7 percent from its current level of 7.6 percent. In forecasts this month, based on no change to the rate, it saw that threshold being reached at the end of next year.
Carney said on Nov. 13 that the economic recovery has "finally taken hold" as policy makers raised their growth forecasts, and he offered a more benign view on inflation.
Deputy Governor Charlie Bean, speaking alongside Carney, agreed that policy makers are in no hurry to tighten policy.
"The honest answer is that we don't know how much productivity will come back as the recovery proceeds," he said.