By Ana Nicolaci da Costa
NOTTINGHAM, England, Jan 22 (Reuters) - Bank of England policymakers are discussing what they will do when unemployment falls to their threshold level for considering an increase in interest rates, a top official at the central bank said on Wednesday.
“I am discussing it internally but I am not going to make any statements until I have discussed it with my colleagues,” Ian McCafferty, a member of the BoE’s Monetary Policy Committee, told reporters.
Earlier on Wednesday, data showed Britain’s jobless rate fell to 7.1 percent in the three months to November, just above the 7 percent level which the Bank has set as its threshold for considering an increase in its record-low interest rates.
Minutes of the BoE’s latest meeting stressed that interest rates would not rise immediately when the 7 percent level was reached, given Britain’s subdued inflation outlook.
In a speech in the central English city of Nottingham, McCafferty echoed the tone of the minutes and said that once unemployment falls to 7 percent “we will then be able to say more in detail about where we will be going”.
McCafferty’s comments were the first from a Bank policymaker after the stronger-than-expected unemployment data on Wednesday, which raised pressure on the central bank to tweak or further clarify its “forward guidance” policy as the economy recovers.
“The recovery is still in its early stages, and the headwinds to growth linked to the financial crisis are likely to persist for some time yet... When the time does come to reduce the current degree of stimulus, it would be appropriate to do so only gradually,” McCafferty said in his speech.
He also said the conditions for a rebound in business investment were falling into place, reiterating the BoE’s view that it is key for the long-term sustainability of Britain’s economic recovery,
However, McCafferty said it was normal for business investment to be lagging the pace of Britain’s economic growth, currently one of the strongest among industrialised nations.
“A broad-based recovery in activity - which must mean a recovery in household spending, which accounts for 60 percent of gross domestic product (GDP) - is a prerequisite for a recovery in business investment, not the other way round,” he said.
That might take a little time in coming, McCafferty said, adding that more rapid investment growth may not show through until late this year and into 2015.
McCafferty said he suspects official investment data will be revised up more in line with other surveys, to show Britain is already in the very early stages of an investment recovery.