-Bank of England officials left the U.K. central bank's main interest rate unchanged on Thursday at their first meeting since unemployment tumbled past a threshold they set out in August.
The BOE said its Monetary Policy Committee kept the central bank's benchmark interest rate at a record low of 0.5% and the total size of its bond portfolio at GBP375 billion ($636 billion) after a two-day meeting. Sterling and U.K. government bonds were broadly unchanged in response to the decision.
This month's policy meeting was the first held since the first phase of the BOE's interest-rate guidance, which was launched in August, expired. Central banks around the world have adopted various forms of "forward guidance" in an effort to boost growth by encouraging greater spending and investment.
In the U.K., BOE officials led by Gov. Mark Carney had pledged not to consider raising borrowing costs at least until joblessness in the country dipped below 7%, a threshold they initially thought might take years to be reached. But a speedier-than-expected economic recovery has meant that the latest data, published in April, showed the unemployment rate averaged 6.9% in the three months to February, down from an average of 7.1% over the previous three months.
The fall in unemployment and the expiration of central bank's jobless rate-pledge is unlikely to trigger a near-term change in BOE policy. Mr. Carney and his rate-setting colleagues already rewrote their guidance, saying in February they expect to keep borrowing costs down as long as inflation remains subdued and slack in the labor market persists.
Traders and many economists believe the BOE won't start to lift its benchmark interest rate from its 0.5% low until early next year despite recent rapid growth in the U.K. economy. The International Monetary Fund predicts the British economy will expand 2.9% this year, the fastest pace of growth among the Group of Seven top economies.
Minutes of May's policy meeting will be published May 21. August's rate guidance has meant that all nine members of the MPC voted unanimously for stable policy as long as unemployment remained above 7%. With that constraint now gone, divisions over when to raise rates are expected to widen this year. Already Mr. Carney has sounded wary of raising rates until wage growth picks up, a sign he may prefer to wait. Others, such as Martin Weale and Ian McCafferty, have signaled they may prefer to tighten policy sooner rather than later.
Another problem BOE officials are grappling with is the housing market. Home prices have surged in the U.K. thanks to combination of limited supply, cheap loans and government subsidies. The BOE has said raising interest rates will be "the last line of defense" against an overheating market and that it will first deploy a range of new tools if financial stability appears to be under threat from risky lending.
Those tools, wielded by the BOE's Financial Policy Committee, include the ability to jack up bank capital requirements and demand lenders implement tougher tests to ensure would-be borrowers can afford big loans. The panel meets next month and will publish its recommendations June 26.