By continuing to use this site you consent to the use of cookies on your device. Find out more about our cookie policy and the types of cookies we use by clicking here

Carney Confirms No Rate Rise

In a speech at the World Economic Forum in Davos, Carney effectively confirmed that the Forward Guidance the bank had previously given is no longer relevant

Morningstar News Team 24 January, 2014 | 4:38PM

Bank of England Governor Mark Carney Friday signaled that rising productivity will now be the key factor that decides when the central bank will start to tighten monetary policy, and any tightening will be a slow, gradual process.

In a speech at the World Economic Forum in Davos, Carney effectively confirmed that the Forward Guidance the bank had previously given is no longer relevant after unemployment fell far faster than the central bank anticipated when the policy was introduced in August. He signaled that interest rate rises were still some way off because the rise in numbers in work wasn't being matched by increased productivity.

"It now seems likely that the rate of unemployment consistent with stable inflation in the medium term is somewhat lower than the (monetary policy committee) assessed back in August," the Governor told the Davos CBI British Business Leaders lunch.

Carney said he believes that factors including progress in the banking sector, the potential for skilled workers to return to higher-productivity jobs, and anticipated economies of scale, will boost productivity as the recovery continues, but he cautioned that the recovery will need to be sustained for longer if productivity is to grow "in earnest".

"Even though unemployment is falling faster than expected, the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy," Carney said.

The Bank of England policy setters will adapt its Forward Guidance to "changing circumstances" in its February Inflation Report, the governor added.

"The MPC will consider a range of options to update our guidance, recognising both what we have learned about the behaviour of aggregate supply in the economy as well as the more benign inflation outlook," Carney said.

By Steve McGrath; steve.mcgrath@alliancenews.com

Supplied by Alliance News

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Morningstar News Team  Please direct comments about this article to the News Team.