The Bank of England said yesterday that the UK’s recovery has “finally taken hold” after it upgraded its growth forecast for 2013 from 1.4% to 1.6%
It predicts gross domestic product (GDP) improving by 0.9% in the current quarter of the year and has lifted its outlook for next year from 2.5% to 2.8%.
Unemployment is not expected to fall to a key threshold of 7% before the end of 2016 but the chances of it reaching that level sooner have increased, according to the Bank’s quarterly inflation report.
Bank governor Mark Carney said: “For the first time in a long time, you don’t have to be an optimist to see the glass as half full. The recovery has finally taken hold.”
The report from the Bank’s Monetary Policy Committee (MPC) said: “Recovery has finally taken hold. The economy is growing robustly as lifting uncertainty and thawing credit conditions start to unlock pent-up demand.
“But significant headwinds – both at home and abroad – remain, and there is a long way to go before the aftermath of the financial crisis has cleared and conditions normalise.”
It said this challenge underpinned the need to maintain “exceptionally stimulative” monetary policy – which includes a £375billion quantitative easing programme pumping money into the economy, and interest rates held at 0.5%.
The Bank has pledged not to raise the rate before unemployment falls to 7% and its central forecast predicts that this will still be 7.1% by the end of 2016.
But the complex statistics used to predict the jobless figure show there is now a greater than 50% probability of that taking place by the third quarter of 2015, brought forward from the second quarter of 2016 forecast in the last report.
Mr Carney said: “The MPC now expects the 7% threshold to be reached earlier than we did in August.”
The mixed picture appears on one reading to bring the Bank closer to the thinking in the markets, which have been sceptical about the timetable for interest rate rises, and expect them to go up in 2015.
John Longworth, director general of the British Chambers of Commerce, said: “The improved outlook is testament to the resilience of businesses across the UK.
“With the 7% unemployment threshold now likely to be reached earlier, we hope that Mark Carney will continue to reassure the business community that this is simply an indicator and will not automatically trigger an increase in interest rates. Any decision to tighten monetary policy must depend on a lasting improvement in economic conditions.”