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Base rate linked to unemployment rate

Base rate linked to unemployment rate

Category: Economy

Updated: 07/08/2013
First Published: 07/08/2013

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The Bank of England will not consider raising interest rates from their current level of 0.5% until the UK unemployment rate has fallen below 7%, it was announced today.

The announcement forms part of the Bank's new strategy, known as forward guidance, whereby the bank has promised to keep base rate at its current record-low until other specific economic indicators, in this case the unemployment rate, show signs of improvement.

The Bank hopes that this forward guidance on monetary policy will boost long-term confidence in the cost of borrowing, leading to lenders launching longer-term, low fixed rate products for consumers and businesses.

The unemployment rate currently stands at 7.8%, with governor of the Bank, Mark Carney, saying that to bring this measure down to 7% would require the creation of about 750,000 jobs, which could take three years.

Mr Carney also said that the Bank will not cut back on its £375-billion asset purchase programme, known as quantitative easing (QE), until the 7% unemployment threshold had been reached


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