Interest rates will stay low until Britain enjoys a prolonged period of strong growth, a Bank of England policymaker has said in a speech indicating that historically cheap credit will remain in place well beyond next year.
Spencer Dale, the Bank's chief economist, said the weakness of the UK economy and the threat of further shocks to the world economy meant Threadneedle Street would want to see a combination of strong growth, low unemployment and rising incomes before raising rates.
His trinity of targets is likely to be welcomed by mortgage payers given the flurry of reports that the Bank will be forced to raise rates next year to calm the current growth spurt.
The likelihood is that while growth has already begun to accelerate, wages are unlikely to begin rising above the rate of inflation until 2015 and only consistently by 2016 when the Bank expects unemployment to fall to its target of 7%.
Addressing a group of business leaders, Dale said the recent optimism could not be taken for granted.
"Events of the past few years may colour and contaminate business behaviour for many years," he said. In particular, he suggested that "the reluctance today of some companies to borrow from their banks may be less a lack of demand and more a breakdown of trust", which adversely effects "the efficient functioning of our economy".
His comments echo the stance taken by the Bank's governor, Mark Carney, who has dismissed concerns that it would need to respond to rising house prices with higher rates.
Dale said the housing market had a tendency to behave like a microwave, "turning from lukewarm to scalding hot in a matter of a few economic seconds", but argued that the central bank is "far better equipped to respond to these types of risks than in the past".
To counter underlying fears among many business people, who have proved reluctant to invest in new equipment and technology since the financial crash, interest rates must remain low.
Dale said: "You can plan for the future in the knowledge that the MPC [the Bank's monetary policy committee] intends to keep interest rates low until we've seen a prolonged period of strong growth, unemployment is significantly lower, real incomes are higher."
He added that his best guess is that such conditions for raising rates remain "some way in the distance".
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