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DERMOT MURNAGHAN: Staying with the economy, interest rates won’t rise until unemployment dips below 7%, that’s what the new Bank of England Governor Mark Carney told us back in August. He told us he didn’t expect it to happen, his estimate was, until 2016 but now that unemployment seems to be falling could interest rates actually go up sooner than expected? Well I’m joined now by one of Mr Carney’s colleagues, Dr Ben Broadbent, he’s a member of course of the Bank of England’s Monetary Policy Committee, the body that sets interest rates A very good morning to you Dr Broadbent, I want to talk to you about this whole issue of forward guidance, as it’s called but first of all, because of what I mentioned there about unemployment and the trigger, the signals that it will send out, does it mean that the Bank is regarding inflation as less of a danger, as less important?

BEN BROADBENT: Certainly not, our primary objective is still inflation but we want to ensure that this recovery, which as Mr Darling just said is only just beginning in a way, continues and is not choked off by a premature rise in interest rates. If, in the meantime, inflation became a problem then that is something that could end guidance.

DM: But within the remit it already is a problem, it’s been so much above the target for so long, the bank hasn’t acted and it could lead one to believe that you’ve almost given up on it, you think okay 2.5, 3% is okay.

BEN BROADBENT: That is certainly not the case. It is true that we’ve had a whole sequence of shocks hitting the economy, many of which I would argue were not foreseeable and that pushed inflation past the 2% target and it is regrettable that it has been above that target for as long as it has been but it is also worth saying that if we had started to push up interest rates before now, that would have prevented or delayed economic recovery that much further and there is always this trade off that we face.

DM: So how copper bottomed then is this forward guidance, this link, as the Governor was talking about, with the unemployment numbers because if, as you seem to be implying there, inflation really took off before the point at which unemployment hit 7%, then the Bank would be forced to act would it not?

BEN BROADBENT: That’s true but I think that’s unlikely. It’s possible there could be more of these inflationary shocks but that’s not our expectation at the moment. Inflation has fallen back from its peaks of a year or two ago, it’s worth saying, it’s now back below three and over the next year we fully anticipate further falls back towards the 2% target, so I think that’s unlikely and so it’s more likely that we would only consider raising interest rates once unemployment falls below 7%.

DM: You are forecasting this far out, the previous Governor and this Governor but as you well know, you can forecast anything you like, it doesn’t necessarily happen and indeed, given the shocks our economy and the world economy has been through from three years ago, from three years before that, they are impossible to forecast so is this really worth anything at all, forecasting up to 2016 when it might not necessarily happen that way?

BEN BROADBENT: You are absolutely right, forecasting is difficult and the economy is uncertain but we have to do it because interest rates, monetary policy act only with a lag so we are always having to think ahead at any point in time and I think the purpose of forward guidance is just to spell out very clearly, not precisely when unemployment will fall below 7%, you are absolutely right we don’t know that for certain, but to spell out very clearly the conditions under which we would think about raising interest rates and the purpose is to reassure people that we are only going to do that when the recovery is on a secure footing.

DM: And it is always about when interest rates go up because we are so close to the bottom that when they do move it obviously has to be upwards. Do you have any concerns then about the effect that it will have on those people getting into this Help to Buy Scheme, already at quite high interest rates, round about 5% for some of the fixes and it may be three years away if that’s when interest rates start to move but that’s not very long in the lifetime of a house or a flat owner who has just got a mortgage, do you have any concerns about what might happen then?

BEN BROADBENT: Obviously we all of us, all borrowers have to make sure that we only take on as much debt as we are able to repay and the lenders also have to ensure that they are not lending excessive amounts, that is true but the numbers entering this scheme are relatively low and although interest rates will as you say at some point start to rise, it is worth remembering quite how low a level we are starting from. The Bank of England has been around for over 300 years and we’ve never been near zero interest rates until they were cut to this level four years ago so I think there is a fair amount they could go up before borrowers got into great difficulty, I must say.

DM: Okay, Dr Broadbent, thank you very much indeed for coming along, good to talk to you. Dr Ben Broadbent there from the Monetary Policy Committee of the Bank of England.