Mark Carney has moved to defend the Bank of England's 'forward guidance' policies and said further stimulus may be necessary keep the UK economic recovery on course.
Speaking at a business conference in the Midlands, BoE Governor Carney (pictured) sought to clarify the purpose of the forward guidance policies the Bank introduced in its August inflation report.
The guidance centred on the Bank's intention to keep rates on hold until unemployment falls from 7.8% to 7%, but many investors' attention focused on the caveats to that forecast.
This caused markets to bring forward their UK rate rise expectations in the belief the Bank will be forced to U-turn on its own estimates.
But Carney suggested markets' belief rates will now rise in mid-2015, rather than by the end of that year, is unrealistic.
"Policy is built not on hope but on expectation. And we estimate there is only a one-in-three chance of unemployment coming down [to 7% by mid-2015]," he said.
"A recovery in growth does not necessarily mean faster job creation and lower unemployment," he added, pointing to the potential for productivity gains and part-time workers taking full-time roles.
"We do not intend even to consider raising [rates] before unemployment falls to 7%. When it does reach that point, we will control whether a rise is warranted, taking into account the strength of the recovery and the outlook for inflation."
The Governor pointed to rising US bond yields, as well as better economic data in the UK, as key factors in gilt yields' move upwards since 7 August.
Benchmark 10-year gilt yields have risen by from 2.5% to 2.75% since the forward guidance announcement.
Carney said the rise means the Bank may roll out further stimulus measures in order to safeguard the UK economic recovery.
"The upward move in market expectations of where Bank Rate will head in future could, at the margin, feed into the effective financial conditions facing the real economy. The [Monetary Policy Committee] will be watching those conditions closely," he said.
"If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further. Our forward guidance was clear that, although we would not reduce the stimulus until the recovery is secure, we would, if necessary, provide more."
The Governor also announced a loosening of rules governing banks' required level of liquid assets in order to "underpin the supply of credit" to the real economy.
The rule change will free up £90bn among the eight major banks and building societies once they meet necessary capital thresholds, Carney said.
But he warned the BoE stands ready to clamp down on mortgage lending if there are signs house price growth is becoming "unsustainable".
"We now have tools other than interest rates that can be used to contain risks in the property and financial sectors," he said.
"The Bank of England is now in a position, for example, to supervise lending to specific sectors more intensively, to make recommendations to banks and building societies to restrict the terms on which new credit is provided, or even to raise capital requirements on mortgage or other types of lending."
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