Bank of England Governor Mark Carney pushed his message that there’s no rush to increase U.K. interest rates, saying there may be more slack in the economy than the central bank’s calculations show.
Speaking to lawmakers today, he said the amount of spare capacity is "at the upper end" of the 1% to 1.5% of gross domestic product estimated by the BOE in its Inflation Report last month. His comments underline a key area of divergence among officials, after policy maker Martin Weale said the level of slack may be overstated.
The central bank refocused its interest-rate policy, known as forward guidance, on spare capacity last month. The revamp came after unemployment fell faster than forecast toward the 7 percent threshold it set for considering a rate increase.
Noting comments by Deputy Governor Charlie Bean yesterday that the key rate may settle at about 2% to 3% once tightening begins, he indicated agreement with that outlook. The BOE’s benchmark interest rate is currently at a record-low 0.5%
Carney also said today it will take "several" interest-rate increases before the BOE begins unwinding its 375-billion-pound quantitative-easing program.
The strongest economic expansion since 2007 has shifted investor focus to when the BOE’s unprecedented stimulus will be removed. As part of the next phase of guidance, the debate on the timing of rate increases will hinge on policy makers’ assessment of slack in the economy.
