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Carney's trump card pegs rates to jobs

Wednesday, August 07, 2013 - 01:50

Aug 7 - The UK's central bank has broken with tradition saying it planned to keep interest rates at a record low until unemployment falls to 7 percent or below, which it views as unlikely for another three years. Joanne Nicholson reports

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It'll be a relief for the UK's banks and many of their customers - interest rates are staying low. The Bank of England's new governor Mark Carney says he hopes they'll stay at half a percent until unemployment falls to 7% - and that could take three years SOUNDBITE (English) MARK CARNEY, GOVERNOR OF BANK OF ENGLAND, SAYING: "A renewed recovery is now underway in the United Kingdom and it appears to be broadening. That is certainly welcome. The legacy of the financial crisis means that the recovery remains weak by historical standards and there is still a significant margin of spare capacity in the economy." Pegging rates to unemployment is a new approach for the central bank. But others are doing the same, including the US Federal Reserve. Offering forward guidance is designed to nurse the UK economy back to health. But keeping borrowing costs low will be a challenge when the Fed's decision to phase out stimulus is pushing up interest rates. Keeping inflation low is also key. Carney has included a get out clause in case there's any threat to financial stability. CMC Market' s Michael Hewson is an analyst at CMC Markets SOUNDBITE (English) MICHAEL HEWSON, MARKET ANALYST, CMC MARKETS, SAYING: "He wants to be very cautious about is driving an asset bubble. You've only got to look at the rise in house prices and really ask yourself do you want to start lighting a fire under them given that they were precisely what got us into this mess in the first place." The UK has been relishing some of this week's encouraging economic data. Manufacturing grew more than expected in June, July retail sales were the best for six years and car sales and house prices continued to climb. But output is still 3 percent lower then before the financial crisis and it's much weaker than the United States or Germany.

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Carney's trump card pegs rates to jobs

Wednesday, August 07, 2013 - 01:50