Mark Carney: UK economic recovery measured, not rapid
A "renewed recovery is taking hold" in the UK economy, but its pace will be "more measured than rapid", Bank of England governor Mark Carney has said.
Mr Carney said the Bank was "removing uncertainty" with its guidance that interest rates would stay low until the unemployment rate had declined to 7%.
But he said it could take some time for joblessness to fall that far.
He also announced moves to ease capital controls on big banks that could boost bank lending by £90bn.
Mr Carney said there was only a one-in-three chance of the jobless rate hitting 7% by mid-2015.
"Furthermore, thinking unemployment will come down faster than the Bank expects isn't enough to believe interest rates will rise soon," he told business leaders in Nottingham.
"The 7% threshold is a staging post to assess the economy. Nobody should assume that it's a trigger for raising interest rates."
Mr Carney had previously predicted that it would take about three years and the creation of 750,000 jobs for the jobless rate to fall from its current level of 7.8% to the 7% threshold.
But in his latest speech, he warned that a recovery in UK growth did not necessarily mean faster job creation and lower unemployment.
"There is certainly scope for the economy to grow through an increase in output per hour worked rather than new job creation," he said.
"Productivity growth has been anaemic and, remarkably, the UK is no more productive than it was back in 2005," he said.
"Were any productivity catch-up to happen, unemployment could take even longer than three years to reach that 7% threshold."
The governor acknowledged that the prospect of interest rates staying lower for longer would be unwelcome for savers, for whom he had "tremendous sympathy".
"But raising interest rates now is not the answer," he said. "Instead, what savers need is what we all need, a stronger economy."
Mr Carney said that the Bank's remit to deliver price stability had not changed, and pledged to bring inflation back to its 2% target.
The governor said the Bank of England was building confidence in banks, so that they could "serve the needs of the real economy" by providing credit to those who could put it to work.
"In particular, we have required banks to repair their balance sheets, so that their capital ratios at least reach a threshold of 7% by the turn of the year," he said.
For major banks and building societies meeting that threshold, the Bank would reduce the level of required liquid asset holdings, such as cash or government bonds, he said.
"The effect will be to lower total required holdings by £90bn, once all eight major banks and building societies meet the capital threshold.
"That will help to underpin the supply of credit, since every pound currently held in liquid assets is a pound that could be lent to the real economy."