In his first public speech since taking office in July, the Canadian reiterated to a business audience in Nottingham his guidance earlier this month that the Bank will not hike rates until unemployment in the UK falls below 7 per cent from its current 7.8 per cent.
He admitted that the prospect of low rates for at least three years “will not be welcome for savers”. Carney said: “I have tremendous sympathy for them – after all, they have done the right thing, set money aside, and now they are earning returns that are substantially below what they would have expected.”
But he said raising rates now was not the answer, as the gathering UK recovery was likely to be “solid, not stellar”.
Later, in a question and answer session, the governor said it remained “as likely as not” that unemployment will be above 7 per cent in three years time.
He also said that, even if the necessary 750,000 jobs were created to hit the target, it would not necessarily “trigger” higher rates, and British unemployment should ultimately be “well below that level”. It was 5 per cent before the crash.
In a wide-ranging speech, Carney said the Bank would also remain vigilant on both inflation and the possible creation of another housing bubble.
He acknowledged that mortgage approvals for house purchase are up 20 per cent on a year ago, while house prices are up 5 per cent.
But he added that mortgage approvals are still running at only a little more than half of pre-crisis levels. Carney also took a sideswipe at Business Secretary Vince Cable, who has previously hit out at the “capital Taleban” at the Bank of England which the politician has alleged have hobbled the recovery by burdening the high street banks with too high levels of capital buffers.
“Some argue that the repair of banks’ balance sheets holds back economic recovery because it causes banks to cut back their lending,” the governor said.
“The reality is the opposite: where capital has been rebuilt and balance sheets repaired, banking systems and economies have prospered.” He cited the US.
The governor simultaneously announced a new potential boost to high street lending to households and small businesses, saying the Prudential Regulation Authority was to loosen the “safety buffers” of liquid assets the big high street banks hold by £90 billion once they met the new regulatory capital thresholds of 7 per cent of loans.
Carney admitted there remained the potential for “bumps in the road” facing the UK’s recovery, including emerging markets under strain, and uneven progress in the eurozone. He said UK productivity growth also remained “anaemic”, no better than it was in 2005 before the crash. But he said he was hearing from businesses that “a renewed [UK] recovery is taking hold amid a rising tide of optimism”.
Carney also hinted at more quantitative easing if necessary to support the recovery, rather than going the US route of tapering its own bond-buying programme to free up cash for the economy.