BoE's Carney unveils 'next phase' of forward guidance

Mark Carney

Bank of England Governor Mark Carney has unveiled the "next phase" of forward guidance - which initially tied the bank rate to the country's unemployment rates - after a sharp fall in jobless numbers took the central bank by surprise.

The bank also sharply revised up its growth forecasts for the U.K. economy in 2014. The central bank now expects gross domestic product growth of 3.4 percent this year - substantially higher than its earlier forecast of 2.8 percent.

(Read more: Forward guidance shift? All eyes on Mark Carney )

Sterling rose 0.47 percent against the dollar as Carney spoke at a press conference following the release of the central bank's quarterly Inflation Report. Meanwhile yields on the U.K.'s 10-year benchmark gilt rose sharply to 2.799 percent after starting the session at 2.75 percent.

Carney's new forward guidance, however, does not link a rate hike to any specific indicators - surprising some analysts.

Instead, he said the bank's monetary policy committee (MPC) would be "monitoring a broad range of indicators" including labor market participation, average hours worked, productivity, and wages.

The bank will also publish forecasts of 18 more economic indicators for the first time.

(Read more: Exports and investment to boost UK recovery )

In August, Carney announced that interest rates would not be raised until the rate of unemployment in the U.K. hit 7 percent - which it did not expect to happen for three years.

Since this unveiling of forward guidance - which marked a significant departure by Carney from the reign of his predecessor, Mervyn King - joblessness has fallen much faster than expected, sliding to 7.1 percent in the three months to November.

(Read more: UK economy records fastest growth in 6 years )

The bank now expects unemployment to have hit its 7 percent target in the three months in January, and to continue to fall to 6.5 percent early 2015.

"We've learned as we went along the way, we didn't expect to be here at this point in time," Carney said at the press conference.

-By CNBC's Katrina Bishop . Follow her on Twitter @KatrinaBishop and Google

image: © Bloomberg

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