Bank of England points to 2015 rate rise, blurs guidance

Wed Feb 12, 2014 12:44pm EST
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By David Milliken and Ana Nicolaci da Costa

LONDON (Reuters) - The Bank of England said on Wednesday British interest rates could start to rise from record lows in little more than a year as a rapid recovery brings the economy closer to operating at full steam.

Governor Mark Carney - forced to ditch a previous version of rates guidance after it was overtaken by a sharp fall in unemployment - also announced the Bank would now follow a much broader range of measures of slack in the economy in making rates decisions.

The BoE slashed interest rates to 0.5 percent at the height of the financial crisis in 2009. The economy bounced back strongly last year but remains smaller than before the crisis and Carney stressed any increase in rates would be gradual.

"The message to businesses, to households is that the Bank rate is going to follow a path that is consistent with jobs, with incomes and with spending growing in a sustainable way," he

said. "We are going to calibrate it carefully. We are not going to take risks with this recovery."

The central bank said a view in financial markets that rates could rise in the second quarter of next year - around the time of a national election - was consistent with its goal to keep inflation close to its 2 percent target.

It also pointed to market expectations that its interest rate would stand at 2 percent in three years' time, a timeframe supported by a Reuters poll of economists taken after the BoE announcement.

Sterling hit a two-week high against the dollar and British government bond prices fell after the Bank's announcement as investors added to bets on a rate hike next year.   Continued...

Bank of England governor Mark Carney speaks during the bank's quarterly inflation report news conference at the Bank of England in London February 12, 2014. REUTERS/Dan Kitwood/pool