By Daniel Hunter
Following yesterday's (Wednesday) announcement that the rate of inflation will be linked to the rate of unemployment John Longworth, Director General of the British Chambers of Commerce (BCC), has said the bold initiative will reassure businesses.
Mark Carney, the Bank of England (BoE) governor, announced plans that will see the Bank hold interest rates at 0.5% until the jobless rate has fallen to 7% or below.
“The introduction of a seven percent unemployment threshold before the MPC considers tightening monetary policy will reassure business. We agree with the committee that a decline in the unemployment rate to seven percent is unlikely in the next few years, so it looks as though interest rates will remain low for quite some time," said Longworth.
"This will give businesses a much-needed confidence boost when looking to invest, as they know that any plans will not suddenly be derailed by a hike in interest rates. We are also pleased that Mark Carney has shown his commitment to the two percent inflation target, as we believe that higher inflation damages growth prospects.
“While the governor made it clear that forward guidance is not a legal commitment and will ultimately depend on economic circumstances, it is still a positive development. However, we would like to have heard something more concrete about how the MPC plans to underpin the recovery.
"We would urge the Bank of England to use its balance sheet to further capitalise the British Business Bank or underwrite private investment in infrastructure projects, as this would help to secure the long-term economic future of the UK.”
Join us on