Transcript

HUGH PYM

Forward guidance on interest rates; it was Mark Carney's big idea when he arrived at the Bank of England last summer. But today the Governor, faced with unexpected developments in the economy, had to announce a policy overhaul. Growth is stronger this year and inflation lower than expected but he believes the repair job required on the economy is not yet complete.

MARK CARNEY

The recovery as yet is neither balanced nor sustainable. A few quarters of above trend growth, driven by household spending are a good start but they aren't sufficient for sustained momentum

HUGH PYM

He hinted that the first interest rate rise might be in the spring of next year and there wouldn't be a lot more after that.

MARK CARNEY

One illustration of the possible level of bank rate in the medium term can be derived from the latest forecast of the bank, that is based on a market curve which itself approaches only 2% interest rates three years from now.

HUGH PYM

This is certainly a change of tack by the governor and his colleagues here at the bank. Interest rate decisions have been focused on unemployment falling to a certain level. But now that the 7% threshold has nearly been reached, policy makers instead will concentrate on a whole range of economic variables.

So what do businesses make of it all? This Barnsley based engineering firm invested in new machinery after the bank of England's assurances about low rates last summer. The boss has urged the bank not to abandon it's commitment to keeping a lid on borrowing costs.

INTERVIEWEE

We would really like to see interest rates remaining low and knowing what's gonna happen in the long-term is a really important part for us.

HUGH PYM

Critics argue the Bank of England's credibility has been dented because it's original forecast was wrong and it's now had to drop the unemployment threshold. The bank argues it's simply moved into a new phase. The challenge now is how to communicate it's views on low interest rates. Hugh Pym, BBC News.