No need to raise rates yet

Bank of England governor Mark Carney said there is “no immediate need” to increase interest rates, as he bolstered officials’ defence of the low borrowing costs they are maintaining.

“The worst of the crisis is behind us, but the financial system is not functioning as well as it could,” Mr Carney said in Davos, Switzerland. “Uncertainty among households and businesses is still preventing investment.”

Mr Carney’s view that tighter policy isn’t yet required repeats comments made in the past 24 hours by fellow Monetary Policy Committee members Paul Fisher and Ian McCafferty. Officials believe the policy should be kept loose to shore up the recovery after unemployment fell faster than forecast toward the threshold at which they have said they may reassess borrowing costs.

The committee will examine its policy stance when it releases economic projections on Feb 12, Mr Carney said. The key rate has been at 0.5% since Mar 2009.

Policy makers will look at “overall conditions in the whole labour market,” Mr Carney told BBC’s Newsnight. UK economic growth is “coming off a low base.”

The unemployment rate slid to 7.1% in the three months through November, data showed yesterday, prompting investors to add to bets for higher borrowing costs. Last August, officials said they wouldn’t consider increasing the key rate at least until unemployment, then at 7.8%, fell to 7%.

“We are still some way off the point where it is appropriate to start raising bank rate,” Mr Fisher said in London yesterday. “When it is time, it would be appropriate to do so only gradually.”

— Bloomberg