Bank not close to interest rate increases, says policymaker

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The Bank of England is not close to raising interest rates despite the sharp fall in unemployment towards the central bank’s 7 per cent threshold, policymaker Paul Fisher said yesterday.

Britain’s unemployment rate slid to 7.1 per cent in the three months to November from 7.4 per cent the month before, data showed on Wednesday – just a fraction above the 7 per cent threshold the BoE set in August for considering a rate rise.

Earlier in January, BoE officials agreed that it would not be right to raise interest rates if unemployment hit 7 per cent soon, and in a speech to pension fund managers in London, Mr Fisher emphasised this point in the light of the latest data.

“My own judgement is that we are still some way off the point where it is appropriate to start raising Bank Rate and that when it is time, it would be appropriate to do so only gradually,” said Mr Fisher, the BoE’s executive director for markets.

The central bank would consider offering further forward guidance when unemployment reached 7 per cent, he added.

BoE policymaker Ian McCafferty gave a similar message in a speech in Nottingham late on Wednesday. Mr Fisher said the BoE needed to avoid choking off economic recovery by raising interest rates too quickly, and that the recent return of inflation to its 2 per cent target, and lower price pressures, gave it scope to wait before raising rates.

Although recent economic growth has been strong and unemployment had dropped “unusually precipitously”, Mr Fisher said the outlook for growth was less certain. “We are very conscious that the headwinds have not gone away.

“Much of Europe and some other parts of the world continue to struggle for sustained growth, fiscal consolidation... is likely to continue for a while to come, and the financial sector still needs some rebuilding,” he said.

Weak recent industrial output and construction figures added to concerns, Mr Fisher added.