Bank of England says the UK recovery has taken hold

Bank of England governor Mark Carney says the UK recovery has "taken hold" and unemployment will fall sooner than it had forecast.

The comments came in the Bank's latest quarterly inflation report, which raised the forecast for UK economic growth this year and next.

On Wednesday, the UK unemployment rate was reported at 7.6%, down from 7.8%.

Chancellor George Osborne said the report was proof the government's economic plan was working.

Mr Carney has said the Bank will not consider raising interest rates until the jobless rate falls to 7% or below.

The timing of a rise in interest rates could have a significant political impact, but Mr Carney says that will not affect his decision making.

In an interview with Channel 4 News he said he would raise interest rates just before the 2015 general election "if I had to".

Chances

The Bank has given a range of forecasts of when it thinks unemployment could fall to 7%. The most optimistic of these is next year, two years ahead of the time frame it gave in August.

The odds for this are low, though.

The Bank said: "The MPC [Monetary Policy Committee] attaches only a two-in-five chance to the... unemployment rate having reached the 7% threshold by the end of 2014.

"The corresponding figures for the end of 2015 and 2016 are around three in five and two in three respectively."

The Bank said on Wednesday that it was not planning to raise interest rates any time soon from their current record low of 0.5%.

Even when - and if - the jobless rate reaches 7% the Bank will not automatically move to change the cost of borrowing.

Growth outlook

Growth for this year is forecast to be 1.6%, up from 1.4% previously thought, and for next year, annual growth is expected to be 2.8%, rather than the 2.5% it predicted in August.

The report said: "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."

Mr Osborne said: "Our economic plan is working and as the governor of the Bank of England says, the recovery is taking hold."

Mr Osborne added that many risks remained but he said the greatest risk would be if his plan was abandoned and quick fixes and more borrowing made a return.

The chief policy director of the business lobby group, the CBI, Katja Hall, said: "The Bank's forecast confirms businesses' view that the UK economic recovery is on track.

"But there are still hurdles to overcome before growth gets back to a sustainable level, including boosting business investment and trade. "

Housing

Interest rate decisions are traditionally used to control inflation.

There is no obvious pressure for an interest rate rise on that basis, as this week, official figures said inflation had fallen from 2.7% to 2.2% in October.

However, house price inflation is at worryingly high levels in certain parts of the country.

Mr Carney said this was largely affecting more expensive properties: "In terms of housing valuation, there are clearly areas in the country where valuation is very elevated.

"What we are seeing across the UK is the greatest price momentum is for houses that are towards the upper end of the valuation spectrum."

One of the Bank's regulatory bodies, the Financial Policy Committee, is charged with looking out for signs of an overheating property market.

Mr Carney said it was on the look-out for any bubbles, but that there did not seem to be any looming: "The Financial Policy Committee will be vigilant about potential risks there, but we need to put the pick-up in housing activity in perspective.

"Activity levels, while they've picked up, are still running at between two-thirds or three-quarters of historic averages in terms of whether it's transactions or approvals, homebuilding, so there is some room for that to further pick up."