The Bank of England raises its growth forecast for the economy, but says interest rates will not automatically rise if unemployment falls faster than previously predicted.
Unveiling the bank’s quarterly inflation report, Governor Mark Carney said: “For the first time in a long time you don’t have to be an optimist to see the glass is half full. The recovery has finally taken hold.”
The bank has upgraded its growth forecast for 2013 from 1.4 per cent to 1.6 per cent and for 2014 from 2.5 per cent to 2.8 per cent. The economy is currently growing at its fastest rate for six years.
Unemployment figures released on Wednesday show that the number of people out of work fell by 48,000 to 2.47 million between July and September.
The unemployment rate fell from 7.8 per cent to 7.6 per cent, the lowest in more than three years.
Mr Carney has issued so-called “forward guidance” on interest rates, with a commitment that base rate will not rise from its current level of 0.5 per cent until unemployment falls to 7 per cent.
But he said that even if it reaches 7 per cent sooner than expected, there will not be an automatic rise in interest rates. He told Economics Editor Faisal Islam: “Forward guidance is helpful to sustain the recovery.”
Although Mr Carney was relatively bullish on the state of the economy, he said many people were working part time who wanted full-time jobs.
Figures from the Office for National Statistics show that although the number of people in work has reached an all-time high of almost 30 million, nearly half are working part-time because they cannot find full-time jobs.
The quarterly inflation report says that while the economy is “growing robustly …. there is a long way to go before the aftermath of the financial crisis has cleared and economic conditions normalise”.
Although it is standing by its forecast that unemployment will fall to 7.1 per cent by the end of 2016, its figures show there is a greater than 50 per cent chance of that happening by the third quarter of 2015, brought forward from the second quarter of 2016 predicted in the last report.
The latest forecast is in line with market expectations that unemployment will fall faster than the bank has forecast and interest rates will rise in 2015.
Inflation is also likely to be lower than expected, falling to around its 2 per cent target “over the next year or so”.
Shadow chancellor Ed Balls said: “After three damaging years of flatlining, these growth forecasts are welcome, but for millions of families this is still no recovery at all.
“As the governor is rightly warning, prices are still rising faster than wages and new figures today show working people are on average £1,600 a year worse off since David Cameron came to office.”