By Marcus Leach
Mark Carney, the Bank of England (BoE) governor, has announced plans that will see the Bank hold interest rates at 0.5% until the jobless rate has fallen to 7% or below.
Mr Carney said he expected this would require the creation of about 750,000 jobs and could take three years. At present the rate of unemployment in the UK stands at 7.8%.
Here is what the business world thought of the announcement.
John Cridland, CBI Director-General, said: “Greater interest rate certainty and clarity from the Bank should provide a shot in the arm for business and household confidence.
“This is a pro-growth statement with an important eye to inflation risks, and unemployment is an appropriate measure of economic progress.
“Businesses will be buoyed by the support it should give to the economic recovery and be reassured by the built-in conditions around inflation and financial stability.”
Brendan Flattery, CEO, Sage UK and Ireland, said: “Business in Britain is bouncing back and Carney’s clarity on interest rates is good news for companies across the country.
“With renewed business confidence returning to all sectors, we must not let today’s commitment to record low 0.5pc interest rates overshadow the fact that access to finance continues to remain the greatest challenge for growth and will inevitably impact the private sector’s ability to reduce unemployment to the BoE 7pc target.
“A recent survey of 700 of Sage’s customers revealed that more than one in four of those businesses who had applied for a loan in the past 12 months were turned down. Lending to business must now top the government’s business agenda to achieve the sustained and robust economic recovery that we all crave.”
Nick Beecroft, Chairman at Saxo Capital Markets, said: “The Banks's decision to adopt 'outcome-contingent' guidance, as opposed to the 'time-contingent' alternative, is very wise, if nothing else, with respect to future prospects for its own credibility.
"At least now, the need to raise rates rather sooner than is currently implied by the forecasts within today's August Inflation report, will represent only a minor embarrassment, and in all likelihood will be delivered in the context of good economic news -and the Bank is used to forecasting embarrassments!
"The nightmare scenario for us all is that policy has to be tightened because one or other of the 'knock-outs' has been triggered before unemployment has fallen meaningfully. I see a real danger that knock-out 2, (medium-term inflation expectations become unanchored), before unemployment hits 7%, given what's happening in the housing market.
"If one was cynical, with respect to the first 'knock-out, one might say a) that means the BOE inflation target has been surreptitiously raised, if not to 2.5%, then certainly some way above 2% and b) since the knock-outs breach is dependent on the BOE's own forecasts, there may be a conflict of interest there.
"It will now be vital for the markets to see if these decisions were unanimous - we will find out on 14th, when the meeting minutes are released. Absence of unanimity will undermine the whole message and probably increase fears of earlier tightening.”
Myles Baxter, Caxton FX, said: "As expected Carney has followed in the Fed’s footsteps by linking the outlook for interest rates to unemployment and inflation.
"Carney confirmed the Bank of England’s commitment to keep interest rates low until unemployment falls to 7%, which is not expected to happen until late 2016. Although the BoE Governor acknowledged the UK recovery is underway, he stressed the fact the recovery is still weak by historical standards.
"The BoE reaffirmed their commitment to price stability claiming the “action taken by the committee would depend on its assessment of the appropriate setting of monetary policy required to fulfil its remit to price stability”. The pound weakened across the board immediately after Carney’s comments, but has since rebounded and is now up on the day against both the euro and the US dollar."
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