Interest rates 'could stay' at 0.5%, says Bank of England's Weale

Bank of England rate-setter Martin Weale today said it was “perfectly possible” interest rates could remain at record lows after unemployment sinks below the 7% marker for the central bank’s new forward guidance regime.

Under forward guidance, the monetary policy committee will not even consider rate rises until the jobless rate — currently 7.6% — falls to 7%.

But questions over the policy have been raised since Bank’s latest forecasts this week, which showed the jobless rate potentially hitting the threshold by the end of 2014 — fully 18 months earlier than it thought just three months ago.

The Bank has been at pains to stress that 7% is a threshold, not a trigger for rate hikes.

Weale said today: “It is perfectly possible that, as time moves on, the right thing to do will be to keep the bank rate at 0.5% per cent even when unemployment has dropped below our seven per cent threshold.

“As my colleagues have explained, a rise is not automatic. We will do what we have always done; look at the state of the economy and take the most appropriate decision in the light of that.”

Weale added that he was closely monitoring inflation expectations — one of the three “knockouts” for the forward guidance. He said there had been “some upturn” to inflation expectations but added: “Only if a significant upward movement persists should be we concerned.”