Bank: UK Recovery Has Finally Taken Hold

The Bank of England has upgraded its growth forecasts for the UK economy with its governor Mark Carney declaring: "The recovery has finally taken hold."

The bank's quarterly Inflation Report showed it had raised its GDP expectations for 2013 from 1.4% to 1.6% and for 2014 from 2.5% to 2.8%.

Mr Carney told reporters that while growth had not returned to normal, the glass was now "half full" and the jobless total had fallen by more than the monetary policy committee (MPC) had expected.

But attention was focussed on the possibility of interest rates rising much earlier than the bank had anticipated - given the strength of the recovery - and raising the prospect of variable mortgage bills soaring in just 12 months' time.

Under the bank's forward guidance policy, Mr Carney had said in August that the base rate of interest would not be raised by the MPC until the unemployment rate reached at least 7%.

The bank said it would remain vigilant for evidence of house price bubbles

In August, the bank anticipated that target not being reached until late 2016 but today he confirmed there was a 40% chance it could be reached in just a year's time - raising the prospect of higher bills for families in the final quarter of 2014.

But Mr Carney insisted that while the bank would not even consider raising the base rate until that 7% target had been reached, any rise in borrowing costs would depend on the wider conditions in the economy - casting doubt on a rate rise even into 2015.

The shift brought the bank's expectations for a rise in the base rate more into line with those of the markets, which have largely priced in a rate rise by mid-to-late 2015.

The report also said that inflation had been lower than expected and was on course to fall back to around its 2% target "over the next year or so."

Figures on Tuesday showed it fell to 2.2% in October, a 13-month low, though increases to energy bills were yet to be recognised in the statistics.

On the general picture, the report stated: "In the United Kingdom, 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 economic conditions normalise."

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