MILLIONS of homeowners were given a massive boost yesterday when the Bank of England’s new boss signalled that interest rates will stay at rock bottom for another three years. In his first significant move since taking over as governor in Threadneedle Street, Canadian Mark Carney said the base rate will not increase from the current 0.5 per cent “emergency” level until unemployment falls below 7 per cent of the workforce. Official forecasts say that target will not be met until 2016 – but some experts said it could take until 2017. The former Bank of Canada chief said the move would create an extra 750,000 jobs and he upgraded the UK economy’s growth projections to 1.4 per cent for this year and 2.5 per cent in 2014. “A renewed recovery is now under way, ” Mr Carney said. His upbeat forecasts came in a new - style monthly inflation report designed to give a long - term picture of interest rate trends. But he was slated by campaigners representing savers, who face another three years of low
returns. Delivering his report, Mr Carney said: “There are clear signs that economic activity has strengthened this year. “But there should be little satisfaction. Much is at stake as we seek to secure this recovery and return inflation to target. ” There were caveats that the Bank could act on rates sooner – including if it fears inflation will be 2.5 per cent or higher in 18 months to two years or there is a “significant threat to financial stability”.
The Bank also pledged not to cut back its £375billion money-printing scheme until unemployment, now 7.8 per cent, falls below 7 per cent. Mr Carney continued: “Unemployment is still high. There are a million more unemployed today than before this financial crisis and many who have jobs would like to work more.” Vicky Redwood, chief UK economist at consultancy Capital Economics, said the Bank’s guidance was a “clear steer that interest rates will stay on hold until the end of 2016 or even 2017”. She said it “exceeded” the market’s expectations. The FTSE-100 share index fell slightly after Mr Carney’s speech and business leaders were cautious about the new-style inflation report. Graeme Leach, chief economist at the Institute of Directors, said: “Forward guidance doesn’t really take us forward and we are very concerned at the use of monetary policy to chase unemployment.” Savings groups raised concerns about continuing low interest rates. Simon Rose, of the Save Our Savers pressure
group, said: “The Bank of England has failed to meet its inflation target for most of the past seven years. “Now it clearly has decided to ignore even higher price rises, inflicting continuing misery on most Britons, in the hope that the same policies that have failed since the crisis will somehow magically work in future.” Dr Ros Altmann, a former Government adviser on savings, said: “This policy environment undermines incentives to save. It may suit borrowers short-term but has dangerous longer term consequences.”