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Bank of England clarifies rate outlook

London - Bank of England Governor Mark Carney said on Tuesday the central bank's forward guidance policy aimed to signal how interest rates might change over the medium term, not pinpoint the timing of a first hike.

The BoE introduced forward guidance in August last year, saying it would not consider a first increase to record low interest rates until unemployment fell to 7 percent.

Bank of England Governor Mark Carney. Credit: REUTERS

It changed the policy in February to focus on a broader range of spare capacity in the economy after the jobless rate plunged towards that level much faster than it had expected.

Carney and other Bank officials have said in recent months that the BoE's benchmark rate would rise only gradually from its current level of 0.5 percent and would probably settle at lower levels than before the financial crisis.

“We don't know exactly when the rate cycle is going to start. It will be driven by the data. We do expect markets to react to that data,” Carney told lawmakers at a hearing in Britain's parliament on Tuesday.

Carney, asked about comments he made last month that a first rate hike might come sooner than markets were thinking, said he wanted to make investors think about the chance of an early increase in borrowing costs as Britain's economy recovered.

“We were concerned that markets were not reacting to data, a fairly long run of data, that was as good as expected, if not slightly better,” he said.

“The only guidance that the new MPC is now giving is around the expected medium-term path of interest rates, not the timing of the first rate rise.” - Reuters

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