Bank of England governor Mark Carney unveiling the November 2013 Inflation Report
"Inflation is now as low as it has been since 2009. Jobs are being created at a rate of 60,000 per month. The economy is growing at its fastest pace in six years," he says. "For the first time in a long time, you don’t have to be an optimist to see the glass as half full. The recovery has finally taken hold.
But he also added: "It is welcome that the economy is growing again, but a return to growth is not yet a return to normality. Nearly one million more people are out of work than in the years before the financial crisis. Many others in part time work would prefer to be working full time. Real wages are not yet increasing. And the economy remains 2.5% smaller than it was in 2008.
"A strong and sustained recovery is needed to put people back in work and use up the slack in the economy. A sustained recovery requires a revival of business investment. So far the upswing in growth has been driven by a modest recovery in consumer spending
and a revival in housing investment. That is not surprising – we cannot expect to see strong export demand from the UK’s major trading partners, and business investment typically takes time to pick up during recoveries.
"The eventual recovery in business investment will be supported by the continuing improvement in credit conditions as our banking system gains in strength, and by reduced uncertainty about future prospects. While recent surveys of investment intentions have been
encouraging, the handover from household to business spending may not be smooth.
"A sustained recovery requires confidence that exceptionally stimulative monetary policy will be maintained in the face of weak foreign demand and on-going repair of household, bank and government balance sheets. Our forward guidance means the MPC will not even consider raising Bank Rate at least until the unemployment rate reaches 7%. Through that guidance we are giving businesses and households the confidence that interest rates won’t go up until jobs, incomes and spending are recovering at a sustainable pace.
"In line with the unexpected strength of demand, the unemployment rate has fallen a little more rapidly than expected in August. That is to be welcomed: 100,000 more people are in work as a result.
"The MPC continues to make the conservative assumption that productivity recovers only gradually so that none of the gap relative to its pre-crisis path is closed over the forecast period. As a result, stronger near-term growth causes unemployment to fall faster than
expected in August. Based on the assumption that Bank Rate follows market interest rates, we judge there to be a two in five chance that unemployment will reach the 7% threshold by the end of next year, and a three in five chance that it will have done so by the end of 2015.
"With the recovery taking hold, our task now is to secure it. The Bank will remain vigilant to risks to financial stability from the housing sector, in particular from rapid increases in house prices and household leverage. We have a direct line of sight on the housing market across all of our responsibilities, and any potential risks will in the first instance be addressed by the Financial Policy Committee. We will continue the process of repairing the financial sector."
"And we will continue to provide exceptional monetary stimulus so that British households and businesses have, for the first time in a long time, the confidence not just that the glass is half full, but that it will be filled."
In response the governor statements, Katja Hall, CBI chief policy director, says: “The Bank’s forecast confirms businesses’ view that the UK economic recovery is on track. But there are still hurdles to overcome before growth gets back to a sustainable level, including boosting business investment and trade. Activity in these areas should begin to pick up next year and to support this we need the Government to maintain a stable business environment, invest in infrastructure and help firms to sell their products and services around the world.”
