* BoE signals first rate hike could come in Q2 2015
* Bank lowers jobless forecasts, stocks to growth, inflation
* Carney says UK has "edged closer" to rate hike
* Pound weakens, government bond price rise
(Recasts, adds comments from economists, background)
By David Milliken and Ana Nicolaci da Costa
LONDON, May 14 The Bank of England pushed back
against expectations it might raise interest rates in less than
a year's time, saying on Wednesday that Britain's economic
recovery is still in its early stages.
The central bank acknowledged a strong bounce-back in the
labour market since last year, lowering its forecast for
unemployment for the next couple of years.
But it left largely unchanged its assumptions on the timing
of interest rate rises and its growth and inflation forecasts.
The pound fell to a one-month low against the dollar after
the Bank's report as the markets had been betting that the
recovery in the economy meant a rate hike possibly as soon as
this year. British government bond prices rose.
"As time has moved on and the recovery has been sustained,
the economy has edged closer to the point at which Bank Rate
will need gradually to rise," Carney said at a news conference.
But he stressed the recovery from the financial crisis was
still in its early days, comparing its progress so far to the
equivalent of a country making it through the qualifying rounds
for the soccer World Cup, which starts in Brazil next month.
"That is an achievement, but not the ultimate goal. The real
tournament is just beginning and its prize is a strong,
sustained and balanced expansion."
Britain's economy is due to grow about 3 percent this year,
probably making it the star performer among big, industrialised
nations. Financial markets had mostly priced in a rate move for
around nine months' time before Wednesday's report by the BoE.
Short-sterling interest rate futures rose sharply
across the 2015 and 2016 strips, indicating that markets were
pushing back their expectations for the first rate hike. In
recent weeks markets had priced in a rate rise for around nine
months' time due to strong economic data.
"The market has pared back any fears that the BoE would be
raising interest rates before year-end, and has even started to
doubt whether it'll move as early as Q1 2015," said Nick
Stamenkovic, strategist at RIA Capital.
Some economists said the BoE's Monetary Policy Committee
risked appearing too relaxed.
"It's hard to get away from the impression that the MPC is
increasingly taking risks on the economy that probably aren't
worth taking," said David Tinsley, economist at BNP Paribas.
"A move to a stance that at least would be more clear about
countenancing a tightening in policy would likely not dampen the
growth outlook too much," he said in an email to clients.
The BoE stresses that Britain took far longer to recover
from the crisis than countries such as Germany or France and
justifies its stance on rates by saying there is still a lot of
room for the economy to grow without inflation picking up
The BoE said on Wednesday that the margin of this spare
capacity had narrowed a little but not enough to justify an
interest rate hike.
As if to underscore its point, data on Wednesday showed pay
growth rising by only a fraction above inflation, even as the
unemployment rate fell to 6.8 percent in the three months to
March, its lowest level in more than five years.
The BoE said that in three years' time unemployment could be
as low as 5.25-5.75 percent without creating price pressures.
The Bank reiterated that when the time came, borrowing costs
would rise "only gradually and to a level materially below"
their pre-crisis average.
The BoE forecast that inflation in two years' time would
still be just below its 2 percent target, assuming interest
rates rise in the second quarter of next year - around the time
of a national election.
The Bank has also come under pressure to raise borrowing
costs after house prices jumped by about 10 percent over the
past 12 months, raising fears of a new property bubble.
But Carney again said the first line of defence against
risks from the housing market would be to restrain mortgage
lending rather than to raise rates, saying he had a lot of
confidence in measures such as changing capital requirements for
bank or tightening lending requirements.
The Bank's Financial Policy Committee is expected to take
such measures when it meets next month.
(Additional reporting by Brenda Goh, Karolin Schapps, Sarah
Young and Andy Bruce; editing by William Schomberg and Hugh