The new governor, Mark Carney, used the speech to talk directly to the backbone of the British economy: the owners of small and medium-size businesses.
“The knowledge that interest rates will stay low until the recovery is well established should give greater confidence to households to spend responsibly and businesses to invest wisely,” Mr. Carney said in Nottingham, a city 110 miles north of the bank’s offices in London.
Mr. Carney’s main mission is to shore up the nation’s economy, which has lagged behind competitors in rebounding from the worst global recession since the 1930s.
The United States economy has grown 5 percent over the last five years, but Britain is producing 3 percent less than it did at the start of the recession, Mr. Carney said.
His main act since taking the helm at the start of July has been to introduce an element of “forward guidance” to the bank’s monetary policy. The idea is that by indicating that borrowing costs will not rise for some time, businesses and households will be encouraged to invest and spend. The Federal Reserve has had such guidance for years.
However, Mr. Carney’s initial guidance this month generated some unwanted uncertainty.
On Aug. 1, he said that Britain’s benchmark rate would remain at a record 0.5 percent until unemployment fell to 7 percent, from the current 7.8 percent, or up to three years. Many economists thought the unemployment threshold meant interest rates might rise far sooner than expected and Britain’s borrowing rates in the markets increased.
In his speech on Wednesday, at the University of Nottingham, Mr. Carney said that the bank would not raise interest rates until “jobs, incomes and spending are recovering at a sustainable pace.” He also said that the 7 percent threshold would not necessarily lead to a rise in the interest rate.
“The Bank of England’s task now is to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth,” he said. “We aim to get there in part by reducing the uncertainty that has held back growth.”
Mr. Carney also touched on bigger themes. In the international arena, he explained that Britain must detach its monetary policy from that of the United States.
“While much has been made of the special relationship between the U.S. and U.K., it is not so special that the possibility of a reduction in the pace of additional stimulus in the U.S. warrants a current reduction in the degree of monetary stimulus in the U.K,” he said.
Article source: http://www.nytimes.com/2013/08/29/business/global/bank-of-englands-governor-will-keep-interest-rates-low.html?partner=rss&emc=rss