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Bank of England to keep interest rates low linked to job growth

Bank of England to keep interest rates low linked to job growth
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Jobs are central to the Bank of England’s new policy strategy which includes keeping interest rates at a record low until the UK unemployment rate falls from the current 7.8 percent to 7.0 percent or below.

Economists said that was unlikely to happen for another three years.

Unveiling his much-anticipated “forward guidance” plan, new Bank of England governor Mark Carney said Britain’s economic recovery is underway and seems to be broadening but has a long way to go.

So the option of printing more money to buy bonds and stimulate the economy remains.

Carney told a news conference: “While the unemployment rate remains above 7.0 percent, the MPC (Monetary Policy Committee) stands ready to undertake further asset purchases if further stimulus is warranted.

He added: “Our aim is to help secure the recovery, while ensuring that risks to price stability and financial stability are well contained.”

The BoE said Britain’s economy had strengthened over the
past three months.

But output still remains more than three percent below its pre-crisis peak, a much weaker recovery than in the United States or Germany.

Carney called it “the slowest recovery in output on record”.

The UK central bank’s commitment on interest rates fell short of some expectations of a more aggressive plan to revive growth.

The financial markets are also fretting over inflation.

Prolonged low interest rates can boost inflation and the bank might be forced to put up the cost of borrowing if inflation stays too high – that is above 2.5 percent.

Currently it is at 2.9 percent and the bank believes it will moderate to below 2.0 percent by mid-2015.