"It's a very weak form of forward guidance, subject to so many conditions, so many get-out-clauses"
- Ned Rumpeltin, head of Group of 10 currency strategy at Standard Chartered Plc
During the BoE press conference Governor Mark Carney pledged not to raise borrowing costs until the unemployment rate falls to 7% or below. To do so, the economy would require the creation of around 750,000 jobs, and it can take three years to reach this figure, as currently jobless rate stands at 7.8%. Carney also pointed out that this extra clarity was vital to avoid any unnecessary fears of higher interest rates after recent positive economic news. He also noted that 7% unemployment rate is not a target, at which the BoE would re-examine its interest rates, as this threshold will hold until inflation levels threaten to increase faster than expected, posing significant risks to financial stability.
The U.K. officials also said that they are ready to expand their bond buying programme again if needed. Moreover, they also plan not to unwind the quantitative easing and pledged to reinvest any cash flows from maturing gilts in the 375-billion-pound pile. During the conference, Carney also mentioned the recovery remains weak and fragile by historical standards, and there is still a significant margin of spare capacity within the economy, and the most clear evidence to it is a high rate of unemployment.
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