Bank of England raises UK's economic growth outlook
LONDON - Bank of England Governor Mark Carney on Wednesday launched what he described as phase two of his flagship forward-guidance policy, as the central bank's latest forecasts showed the British economy is poised to expand much faster than officials previously thought.
The bank now forecasts that the U.K. economy will grow by 3.4% this year, much quicker than the 2.8% forecast in November.
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The BOE also said it expects upcoming data will show the unemployment rate in the U.K. fell to 7% in January, more than two years earlier than officials predicted in August when they chose 7% as the point at which they would consider a rise in interest rates. This policy, known as forward guidance, has been a cornerstone of Carney's leadership since he took the helm at the BOE in July.
In its quarterly inflation report, the U.K. central bank stepped away from tying a rise in its benchmark interest rate to progress on unemployment, saying officials will now take a broader look at how many hours Britons are working and other labor-market signals to assess whether they need to tighten policy. The Federal Reserve, which has watched U.S. unemployment drop quicker than it anticipated, has already adopted a similar approach.
Carney sought to reassure Britons on borrowing costs, saying interest rates are unlikely to rise soon, and that even when they do, they are likely to increase only gradually and will remain at around 2% to 3% for years to come - a lower level than the 5% or so that was normal before recession struck in 2008.
An expanded version of this report appears on WSJ.com
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