Bank of England governor Mark Carney: Interest rates held until unemployment falls

Bank of England governor Mark Carney has revealed interest rates will not rise above 0.5% unless unemployment drops to 7% or below, news that will be welcomed by households and businesses.

The Bank does not expect rates to increase until the start of 2017 at the earliest, unless inflation goes up significantly before then.

Mr Carney, who assumed office at the start of July, claimed "a renewed recovery is now underway", with the Bank expecting growth of 0.6% in quarter three and inflation to remain below 3% all year. It was previously feared inflation could reach as high as 3.5%.

He said the Bank would continue its 375 billion asset purchase programme until the unemployment rate falls from the current level of 7.8% to below 7%.

The Bank has this week unveiled a new strategy of forward guidance, which Mr Carney insisted would help secure the recovery, while making sure risks to inflation and financial stability were controlled.

"A renewed recovery is now underway in the United Kingdom and it appears to be broadening," he said.

"While that is certainly welcome, the legacy of the financial crisis means that the recovery remains weak by historical standards and there is still a significant margin of spare capacity in the economy, this is most clearly evident in the high rate of unemployment."

The strength of the pound weakened against other currencies as predictions on when interest rates would shoot back up were moved back.

Mr Carney was widely expected to adopt the new strategy for the Bank with the intention of managing interest rates going forward. They are currently at record lows.

Copyright Press Association 2013