In a widely expected move, Mark Carney, the Bank of England’s new governor, signaled on Wednesday that the country's interest rates will remain at record lows until U.K. unemployment falls below 7 percent, marking a major monetary policy shift for the 319-year-old institution.
The bank said the interest rate will remain at 0.5 percent until the new unemployment target is reached, which the BoE says is likely to occur in mid-2016.
The new policy aims to reassure markets and the public that no monetary policy tightening is planned for the near future, a stance similar to the one adopted by the Federal Reserve in the U.S.
However, if inflation hits 2.5 percent or higher in the medium term, or if the current interest rate threatens financial stability, the bank will reconsider its position.
“The message is that the Monetary Policy Committee (MPC) is going to maintain the exceptional monetary stimulus until unemployment reaches seven per cent [sic] and then we will reconsider,” Mr Carney said at his first press conference since taking the top job last month. “We will do this while maintaining price and financial stability.”
Carney also said the economy was recovering but remained far too weak. "This remains the slowest recovery in output on record," he said. "We're not at escape velocity right now.” He said the unemployment target of 7 percent was not a target but rather a marker on the path to full recovery.