(MENAFN - AFP) The Bank of England is ready to launch more stimulus measures if the economic recovery is hurt by market expectations of higher interest rates, new chief Mark Carney said Wednesday.
The comments came after the BoE's Monetary Policy Committee announced a major policy shift last month, with forward guidance on when it could be expected to raise record-low borrowing costs.
The MPC decided in August that it would not lift its key lending rate from 0.50 percent until the unemployment rate falls to a threshold of 7.0 percent.
Such a drop in the rate was not expected to occur for three years, according to BoE projections, but positive economic data has since persuaded some traders that the central bank could start hiking rates in mid-2015.
Carney warned on Wednesday that this move in so-called forward rates -- market predictions of the future path of interest rates -- could damage the fragile recovery.
"The upward move in market expectations of where bank rate will head in future could, at the margin, feed into the effective financial conditions facing the real economy," Carney said in a key speech.
"The MPC will be watching those conditions closely. If they tighten, and the recovery seems to be falling short of the strong growth we need, we will consider carefully whether, and how best, to stimulate the recovery further.
"Our forward guidance was clear that, although we would not reduce the stimulus until the recovery is secure, we would if necessary provide more."
He added that the rate would need to fall to "at least" the key level of 7.0 percent, adding that this would need to occur "before even beginning to consider whether to raise the bank rate".
Recent official data showed that the unemployment rate remained at 7.8 percent in the three months to June, unchanged from three previous quarterly readings.
That was above the key 7.0-percent threshold that could trigger a hike in the main interest rate.
The BoE has embarked upon a massive stimulus programme since March 2009, when it slashed its key rate to the current record-low level and launched a radical quantitative easing (QE) policy. Under QE, it has so far pumped 375 billion (579 billion, 436 billion euros) into the economy to boost lending and growth.
Britain's economy grew faster than thought in the second quarter, official data showed last week, extending a broad-based recovery.
Gross domestic product (GDP) -- the total value of goods and services produced in the economy -- grew by 0.7 percent in the second quarter. That was up from the previous estimate of 0.6 percent.