LONDON — The Bank of England on Wednesday abandoned its six-month-old strategy of pledging to consider raising interest rates only when unemployment falls to 7 percent, saying it would now take a range of factors into account.
Mark J. Carney, the governor of the Bank of England, also stressed that higher interest rates were still some way off and that any increase would be gradual. The central bank also raised growth forecasts for 2014 again, predicting 3.4 percent economic growth rather than the 2.9 percent expected in November.
Overhauling his “forward guidance” strategy, Carney said that decisions on a rate increase would now be linked to a broader range of factors, including spare capacity in the economy, labor productivity, and wage growth.
“As yet the recovery is neither balanced nor sustainable,” Carney told a news conference, adding that the central bank would take no risks with the fragile rebound.
Securing the recovery could be achieved by “waiting to raise the bank rate until spare capacity has been absorbed further and then eventually through gradual and limited rate increases,’’ Carney said. “Bank rates may need to stay at low levels for some time to come.”
As in Britain, the economic outlook in the United States has improved, and the Federal Reserve has cut back on the bond-buying part of its stimulus effort.
Overtaken by events, the British central bank has had little alternative but to review its August pledge to only start considering raising interest rates from a current record low of 0.5 percent when the unemployment rate falls to 7 percent.
Years of record low interest rates and other government stimulus measures helped revive the economy and push unemployment close to the 7 percent threshold years earlier than the central bank had anticipated.