The Bank of England made a major break with policy on Wednesday, insisting that any rise in its record-low key interest rate would be tied to a drop in Britain’s unemployment rate.
The BoE said it “intends not to raise Bank Rate from its current level of 0.5 percent at least until… the unemployment rate has fallen to a threshold of seven percent.”
Britain’s unemployment rate is 7.8 percent.
The new governor of the bank Mark Carney noted that “a renewed recovery is now under way” for Britain’s economy.
The BoE added that its Monetary Policy Committee stood ready to provide the economy with more cash stimulus while the unemployment rate remains above seven percent — and despite a recent recovery of British growth.
The Bank of England described its pledge over interest rates and stimulus as “explicit guidance regarding the future conduct of monetary policy”.
Markets had widely expected some form of so-called “forward guidance” being introduced by Canadian national Carney, who became head of the BoE at the start of July.
The Bank of England’s main interest rate, which has stood at 0.50 percent since March 2009, is closely tied to borrowing costs offered by the retail banking sector.
The BoE’s record-low rate has resulted in cheap loans for home owners but poor returns for people with deposited savings.