The Bank of England said interest rates will remain on hold until the economy recovers further under new guidance designed to reassure households and businesses over the cost of borrowing.
In an additional forward guidance policy unveiled by the Bank, it stressed that there remains “scope” to keep rates at a record low of 0.5%, adding that even when economic output returns to normal any future rises will be gradual and rates will be significantly below the 5% average seen before the financial crisis.
The Bank’s quarterly inflation report signalled that markets expect rates to start to rise to 0.75% at the start of the second quarter next year, with inflation remaining at around the 2% target if borrowing costs rise as expected. Bank governor Mark Carney insisted that forward guidance was working and said the next phase of the policy will reassure further over the path of rates.
He said: “If and when the time comes that the economy can sustain higher interest rates, Bank rate is expected to rise only gradually.’’