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28 Aug 2013
Carney: BoE ready to inject fresh stimulus to support the recovery
FXstreet.com (Córdoba) - The Bank of England is prepared to provide fresh stimulus into the UK economy if rising interest rates in financial markets threaten the economic recovery, BoE Governor Mark Carney said Wednesday.
Carney defends forward guidance
According to Carney, the MPC will be watching financial conditions closely. “If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further”.
“Our forward guidance was clear that, although we would not reduce the stimulus until the recovery is secure, we would if necessary provide more”, said Mr. Carney. However, the BoE governor did not specify what action the BoE is prepared to take.
Regarding interest rates, he said that BoE forward guidance provided certainty that interest rates will not rise too soon. “Exactly how long they stay low will depend on the progress of the recovery and in particular how quickly unemployment comes down. What matters is that rates won’t go up until jobs and incomes are really growing”.
However, he emphasized the 7% unemployment threshold is not "a trigger" rather a "staging post" at which officials will reassess their policy stance.
Economic forecast
Meanwhile, Carney cautioned that the UK economy still has problems with output weak and inflation about target. Unemployment is too high and the economy is still roughly 3% smaller than it was 5 years ago, he said.
Growth prospects for the next three years are "solid not stellar", Carney said, and joblessness is unlikely to fall quickly as “a recovery in growth does not necessarily mean faster job creation and lower unemployment”.
Banking system
Mr. Carney also announced Wednesday the BoE has decided to further relax rules on or required liquid asset holdings for banks and building societies meeting the minimum 7% capital threshold. This should free up another GBP90 billion of credit for households and businesses, he said.
Carney defends forward guidance
According to Carney, the MPC will be watching financial conditions closely. “If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further”.
“Our forward guidance was clear that, although we would not reduce the stimulus until the recovery is secure, we would if necessary provide more”, said Mr. Carney. However, the BoE governor did not specify what action the BoE is prepared to take.
Regarding interest rates, he said that BoE forward guidance provided certainty that interest rates will not rise too soon. “Exactly how long they stay low will depend on the progress of the recovery and in particular how quickly unemployment comes down. What matters is that rates won’t go up until jobs and incomes are really growing”.
However, he emphasized the 7% unemployment threshold is not "a trigger" rather a "staging post" at which officials will reassess their policy stance.
Economic forecast
Meanwhile, Carney cautioned that the UK economy still has problems with output weak and inflation about target. Unemployment is too high and the economy is still roughly 3% smaller than it was 5 years ago, he said.
Growth prospects for the next three years are "solid not stellar", Carney said, and joblessness is unlikely to fall quickly as “a recovery in growth does not necessarily mean faster job creation and lower unemployment”.
Banking system
Mr. Carney also announced Wednesday the BoE has decided to further relax rules on or required liquid asset holdings for banks and building societies meeting the minimum 7% capital threshold. This should free up another GBP90 billion of credit for households and businesses, he said.