Bank of England chief Mark Carney has ruled out an imminent rise in interest rates.
Carney has faced calls for the base rate to increase from the all-time low of 0.5% since last week’s faster than expected fall in unemployment. The latest figures show that unemployment now stands at 7.1%.
All but burying his "forward guidance" policy of linking an interest rate rise to a fall in the rate of unemployment to 7%, Carney vowed to keep borrowing costs at 0.5% for the time being, warning that an automatic interest rate rise might hinder the economic recovery.
Speaking on BBC's Newsnight, Carney rejected the idea that plunging unemployment was an issue for the Bank. "If our forecast is going to be wrong it's better to be wrong in that direction," he said.
Carney added that when the Bank of England did raise interest rates for the first time since the financial crisis began in 2007, the moves would be gradual.
Economists have continually warned that a rate rise to around 3%, still significantly lower than the long-term norm, would lead to huge increases in mortgage costs and a wave of repossessions, as well as damage business.
Despite the message from Carney, former Monetary Policy Committee member Andrew Sentance said last week that rates should rise “certainly sometime this year and possibly towards the middle of this year if the economic recovery continues.”