By Daniel Hunter
The UK recovery has taken hold according to Bank of England governor Mark Carney.
In the same week that inflation fell to 2.1%, and the rate of unemployment hit a three year low of 7.6%, the Bank's quarterly inflation report raised the forecast for UK economic growth this year and next.
Mr Carney has said the Bank will not consider raising interest rates until the jobless rate falls to 7% or below.
On Wednesday, the UK unemployment rate was reported at 7.6%, down from 7.8%.
Growth for this year is forecast to be 1.6%, up from 1.4% previously thought, and for next year, annual growth is expected to be 2.8%, rather than the 2.5% it predicted in August.
"In the United Kingdom, recovery has finally taken hold. The economy is growing robustly as lifting uncertainty and thawing credit conditions start to unlock pent-up demand," the report said.
"The MPC [Monetary Policy Committee] attaches only a two-in-five chance to the... unemployment rate having reached the 7% threshold by the end of 2014.
"The corresponding figures for the end of 2015 and 2016 are around three in five and two in three respectively."
David Kern, Chief Economist at the British Chambers of Commerce (BCC) said: “We have supported forward guidance since its introduction, as it helps to underpin business confidence. But we have also always said that the 7% unemployment threshold would be reached long before Q3 2016 as initially forecast.
"These revisions imply that the threshold is likely to be reached around the first or second quarter of 2015. This is a sign that the UK recovery, although not yet secure, is likely to be stronger than people felt three months ago.
“Governor Carney stressed that reaching the 7% threshold would not necessarily trigger a rise in interest rates, and this leads us to believe that there will be no increase until the end of 2015. This will provide stability for businesses to invest and create jobs. In the meantime, the MPC must continue to combine forward guidance with a commitment to maintaining economic stability.
“We support Governor Carney’s statement that the pressure on living standards can only be addressed when productivity increases. Simply raising wages before this happens would make businesses uncompetitive and threaten the recovery.”
John Longworth, BCC Director General, said: “With the Bank of England now expecting stronger growth this year, the Inflation Report gives us more reason to believe that the upturn in the UK economy is gathering momentum. The improved outlook is testament to the resilience of businesses across the UK in the face of continued economic challenges.
“With the 7% unemployment threshold now likely to be reached earlier, we hope that Mark Carney will continue to reassure the business community that this is simply an indicator and will not automatically trigger an increase in interest rates. Any decision to tighten monetary policy must depend on a lasting improvement in economic conditions.”
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