Speaking this morning as he unveiled the Bank’s quarterly economic forecast he said record participation in the jobs market, weak wage rises and a growing number of threats to the global economy meant that rate rises would be 'gradual and limited'.
While Carney noted that 'the economy is returning to a semblance of normality', he said there remained some uncertainties about the sensitivity of the economy, and that even when the bank rate rose it would be 'likely to remain below its pre-crisis average for some time'.
Carney said:
"Small, slow increases in Bank Rate should help mitigate the risk that higher borrowing costs trigger a sharp slowdown in domestic demand.
Even if spare capacity were to be eliminated at a stroke overnight, the appropriate level of Bank Rate would not be far from where it is today because of these headwinds. Moreover, even when these headwinds have fully abated, the appropriate level of Bank Rate is likely to remain materially below its pre-crisis average for some time. That’s because higher capital, liquidity and other prudential requirements can be expected to lead to higher spreads between borrowing rates and Bank Rate than before the crisis.
"The Committee’s guidance remains unchanged: increases in Bank Rate, when they come, are likely to be gradual and limited. While that is an expectation not a promise, its clarity is helping businesses to plan, invest and hire, supporting the economic momentum we see today and will need tomorrow."
