Xinhua , London :
Bank of England (BOE) Executive Director of Markets Paul Fisher said Thursday there was “no immediate need” for the bank rate to be increased.
Fisher told an audience of financiers that despite the sharp falls in unemployment to 7.1 percent, it was too early to begin to raise the bank rate from its historical low of 0.5 percent.
Fisher, who is a member of the bank rate-setting Monetary Policy Committee (MPC), said, “Even if the 7 percent unemployment rate threshold were to be reached in the near future, I see no immediate need for a tightening of policy.”
Fisher added, “The MPC has been clear all along, that upon reaching the 7 percent threshold we will have to consider what the medium-term pressures on the economy are and make an appropriate judgement about the direction and pace of policy.”
The BOE targeted 7 percent unemployment rate as the threshold at which it would review the 0.5 percent bank rate.
When that Forward Guidance policy was announced in August last year, unemployment was 7.8 percent and the BOE forecast that 7 percent would be reached in mid-2016. It now stands at 7.1 percent, after a 0.3 percent fall announced on Wednesday. Fisher said the BOE had been stimulating the economy with historically extreme levels of monetary policy for a long time and a variety of headwinds.
These included the eurozone crisis, a tightening of credit conditions, the drag on activity from fiscal consolidation, and a squeeze in household real incomes resulting from the fall in productivity and higher energy and commodity prices.
“It was difficult to explain the suddenness of the change in sentiment which accompanied the recovery during 2013 but growth in itself should not be regarded as surprising. It is the near stagnation from 2010-12 which was harder to understand,” said Fisher. “What seems to have happened in 2013 is that at least some of those headwinds were perceived to have diminished,” he said.
However, Fisher warned the headwinds had not gone away, and the level of output in the economy was still 2 percent below its peak in 2008, and almost some 15-20 percent below where it would have been expected to be by this time in the absence of the crisis.
Fisher said the BOE could encourage growth by committing not to tighten policy until the economy has used up more of its spare capacity.
“On one view the policy is simple-we must give the economy plenty of time to establish the recovery before we start to raise interest rates or unwind asset purchases,” said Fisher.
Fisher said it was crucial to see rising productivity but this had remained poor.
“According to official statistics, output doesn’t appear to be growing fast enough to support the employment growth recorded as well as generate the rapidly rising real incomes one would like to see. Something has to give. I hope that it will be that output grows faster.”
