BoE lifts economic outlook, pledges ultra-low interest rate

Although Britain's economy has started to head back towards normal, as household spending, employment and productivity growth boosts outlook, central bank still needs to maintain its ultra-low interest rate environment to underpin recovery, said Mark Carney, governor of Bank of England (BoE), on Wednesday. The British central bank revised up its economic growth projection for 2015 to 2.9 percent from the previous 2.7 percent, and kept its 2014 projection at 3.4 percent, according to BoE's latest quarterly Inflation Report released Wednesday. "The UK economy continues to perform strongly. Having increased by more than three percent in the past year output is now close to regaining its pre-crisis level, 700,000 more people are in work than a year ago, and inflation is below, but close, to the two percent target," said Carney at a press conference after release of the Inflation Report. On the same day, data from Office for National Statistics showed that British unemployment rate dropped to 6.8 percent in the three month to March 2014, down from the 7.2 percent in the previous quarter, marking the lowest level over the past five years. Nevertheless, significant slack remained in the labor market, according to Carney. "That slack is evident in the 1.4 million people who are working part-time because they are unable to find full time work, as well as in an unemployment rate of 6.8 percent that remains significantly above our estimate of its current equilibrium," noted the governor. Carney also emphasized that the benchmark interest rate would remain at the historical low level for some time, in order to boost economic growth, especially the labor market recovery. The exact timing of interest rate adjustment depended on the evolution of the economy, particularly the degree of slack, and the broader inflation outlook, said the governor. BoE expected that the "slack" in the labor market will be used up more slowly over the next few years than in the recent past, with gross domestic product growth cooling and productivity growth picking up, noted Martin Beck, senior economic adviser to the EY ITEM Club, in an analysis piece. The British economic think tank is sticking their view that a rise in bank rate, or benchmark interest rate, will not happen until well into 2015, Beck added.