Bank of England officials left their bond-buying program unchanged on Thursday as they assessed the impact of Governor Mark Carney’s forward guidance policy to keep interest rates low amid a strengthening economic recovery.
The Monetary Policy Committee, after meeting for the first time since introducing guidance last month, held the target for asset purchases at 375 billion pounds as forecast and also kept its key interest rate at a record low 0.5%.
The 10-year gilt yield rose above 3% for the first time in more than two years after the decision, which didn’t include an accompanying policy statement reinforcing the MPC message. While the guidance signals interest rates will remain on hold until late 2016 as long as inflation remains in check, investors are betting on an increase before then.
Meanwhile in Sweden the central bank kept its main rate unchanged at 1% and stuck to a plan to start tightening late next year.
In a technical statement, the BOE said it will reinvest 1.9 billion pounds associated with redemption of the September 2013 gilt held in its asset-purchase facility. Minutes of the meeting will be published on Sept. 18.
Carney introduced guidance on Aug. 7 and said the BOE won’t consider raising its benchmark rate until unemployment falls to 7%, which it doesn’t see happening for another three years. The jobless rate was 7.8% in the second quarter.
The guidance includes so-called knockouts linked to the bank’s 2 percent inflation goal. Carney said last week that underlying price pressure is “subdued” and inflation will fall back over the next two years from 2.8% in July.
Britain’s economy grew 0.7% in the second quarter with all main sectors showing expansion. Surveys this week by Markit Economics showed services expanded the most since 2006 last month and factory activity increased to a 2 1/2-year high.