to secure the fledgling recovery, to allow it to develop into a period of sustained and robust growth. we aim to get there in part by reducing the uncertainty that has held back growth. and we are using our full suite of policy tools to help rebuild confidence so that we all can move forward in a sustainable manner. first, we are giving confidence that interest rates won ’ t go up until jobs, incomes and spending are recovering at a sustainable pace. in particular, we will have to see the rate of unemployment, currently 7. 8 %, fall at least to a threshold of 7 % before even beginning to consider whether to raise bank rate. second, we are building confidence in banks so they can serve the needs of the real economy by providing credit to those who can put it to work. in particular, we have required banks to repair their balance sheets so that their capital ratios at least reach a threshold of 7 % by the turn of the year. crossing these two 7 % thresholds is necessary to ensure that our economy can withstand the inevitable bumps along the road to full recovery. bis central bankers ’ speeches we must meet the thresholds in a disciplined way. we will ensure that we bring inflation down as the recovery progresses. and we will use our considerable policy tools to prevent new vulnerabilities, whether in the housing sector or financial sector, from arising during this critical transition period. today i want to say more about how the bank will help bring the british economy over the threshold into a sustainable recovery and what that means for you. guidance about monetary policy three weeks ago the monetary policy committee ( mpc ) did something it has never done before : we gave clear, quantitative guidance about the future path of monetary policy. specifically, we announced that we do not intend to raise bank rate at least until the unemployment rate falls to 7 %, provided there are no material threats to either price or financial stability. 1 all nine mpc members agreed to set monetary policy in future according to this framework of forward guidance. that does not mean bank rate will automatically rise when unemployment falls to 7 %. nor is 7 % a target for the unemployment rate – it should ultimately fall well below that level. before the great recession, the uk ’ s unemployment rate stood at just over 5 %. the 7 % threshold is instead a staging post along the road to recovery. when unemployment reaches 7 % the mpc will reassess the state of the economy and the appropriate stance of monetary policy. our forward

##onfirmed in our remit from the chancellor in march. the mpc ’ s guidance is fully consistent with price stability. i can also assure you of my personal commitment to price stability. i certainly have no hesitation in raising interest rates when required – when i was governor of the bank of canada, we raised interest rates as the recovery there gathered pace. but that was the appropriate policy for canada at that time. the challenges in the uk today are different, and policy must be tailored accordingly. the bank of england ’ s remit recognises that, at times, it is appropriate to bring inflation back to target more slowly in order to avoid unnecessary volatility in output. with a depressed level of output and inflation above target due to temporary factors rather than demand the trend is adjusted for the secular decline in north sea oil and gas production. bis central bankers ’ speeches pressures, this is such a time. the mpc is charting the right path back to its 2 % inflation target. cpi inflation is currently being pushed up by rises in utility prices and tuition fees that do not reflect the underlying pressure of demand on supply, along with the effect of past increases in import prices. underlying domestic inflationary pressure is subdued, with wages growing at only around 1 % per year. although there will be bumps in the road, inflation is set to fall back over the next two years. in these circumstances it would not make sense to choke off the recovery by raising interest rates prematurely. given that ‘ administered and regulated ’ price increases will continue to push up on inflation over the next two years, the mpc is prepared to bring inflation back to the target over two years or a little longer. rest assured, however, that we will bring inflation back to target – and at each point we will ensure that risks to price stability are contained. our forward guidance builds in important safeguards of price stability. if there are any signs of underlying inflation pressures building such that it seems inflation 18 – 24 months ahead will be 2. 5 % or more, or if medium term inflation expectations are no longer sufficiently well anchored, then the guidance on interest rates no longer applies. these safeguards give ample flexibility to bring inflation back to target at the appropriate pace, while ensuring that risks to price stability are contained. market reaction to forward guidance much has been made of the upward movements in market interest rates since our announcement of forward guidance. let me give you my perspective. there has been a generalised upward move in long - term