Developed economies are starting to recovery slightly quicker, but they still need training wheels. Britain is no exception. Its economy is showing positive signs, but Bank of England (BoE) Governor Mark Carney said that accommodation monetary policy and low interest rate will still be needed for some time.
There have been concerns that the massive quantitative easing policies have sucked developed nations into a liquidity trap that prevents the economy from moving forward. Carney said he was confident current policies are gaining traction while avoid a trap.
The BoE head also acknowledged that some aspects of the economy could lag. “Leverage is still high and weak demand for advanced economy reports could persist for some time,” said Carney. Although the UK is growing, the country’s economy is still far from where it was prior to the financial crisis. “As the economy recovers, investment should pick up and part-time workers should shift into more productive full-time work,” he said. Carney has a seven percent unemployment target in which he would entertain the thought of increasing the benchmark rate, but it is not a guaranteed trigger.
In November, the credit-lending program was ended in hopes to quell the hasty housing prices and prevent a bubble. The BoE has been concerned with the quick expansion of the housing market, while London becomes an area of concern. According to Halifax, prices in the UK have increased by 7.7 percent year-over-year, quickest pace in six years.
“But there is a history of things shifting in the UK and the housing market of moving from stall speed to warp speed and underwriting standards slipping. So we want to avoid that,” said Carney.
The BoE has kept the benchmark rate at .5 percent over the four years and continued with £375 billion in glit purchase program.