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Forward Guidance Phase 2

Written By On 12/02/2014

Mark Carney delivered his inflation report and said interest rates will rise very slowly even when they do start going up. He hinted that the UK will not experience an interest rate hike before next Spring.

Whilst the governor of the Bank of England was answering journalists' questions this morning, the pound rose against other currencies including the US dollar and the Euro.

He continues with the Bank's forward guidance policy and referred to the former as forward guidance phase 1 and to the current as phase 2.

The annual economic growth was revised to a greater figure of 3.4% and this is partly due to the last two quarters of 2013. Mr Carney insists that we must not become complacent about the recovery.

The governor commented that the UK has

one of the strongest economies in the advanced world, very strong job growth, inflation on target, inflation expectations more well anchored than they were in August.

Even though the MPC believe that the unemployment may well come down to seven per cent in January, they believe that the British economy is not yet ready for an interest rate increase.

The governor said

The objective is not to have forward guidance forever. The objective is to have a recovery that moves into a sustainable balanced expansion. The message to businesses and households is that the bank rate is going to follow a path that is consistent with jobs, with incomes and with spending growing at sustainable rates.

He added.

We're going to calibrate it carefully we're not going to take risks with this recovery. Ultimately, if the recovery proceeds, there will need to be an adjustment in the bank rate. Those will be gradual, those will be limited, but they'll be appropriate to secure that recovery. Again, we want to move from the recovery phase to the expansion phase, and make sure that expansion is durable.

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