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Interest rates to be linked to unemployment

The Bank of England has announced plans to keep the Bank of England base rate of interest at 0.5% until UK unemployment falls to 7%. UK unemployment is currently 7.8%.

The announcement was made by new governor, Mark Carney, at his first Inflation Report news conference.

Mr Carney confirmed the 7% unemployment figure was not a target, but a point at which the Bank of England would re-examine interest rates. He also confirmed the unemployment threshold will hold unless inflation levels threaten to rise too fast or it poses a significant threat to financial stability.

Mr Carney said that until the threshold was reached the Bank would not cut back on its quantitative easing (QE) program.

Although this statement gives some forward guidance to the Bank of England’s plans, it is crucially important to note there is no guaranteed period for the Bank of England base rate to remain the same. The announcement only confirms that the bank hopes to keep interest rates low until there is a drop of 0.8% in unemployment.

Farrell Financial Planning does not give advice on future inflation movements. Farrell Financial Planning are independent financial advisers (IFAs) based in Glasgow, Scotland.

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All information is correct as at 07/08/13.

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