LONDON, Oct 1 (Reuters) - Bank of England chief economist Spencer Dale on Tuesday cautioned financial markets over pricing in a rise in U.K. interest rates before 2016 as outlined in the central bank's new forward guidance plan.
In August the central bank pledged to keep the current record-low bank rate of 0.5 percent on hold as long as unemployment remains above 7 percent, a threshold it did not expect to reach before late 2016.
But upbeat UK economic data has fuelled speculation that the bank might hike rates sooner than suggested with the financial markets and 82 percent of firms, according to a recent survey, thinking interest rates could rise by 2015.
Dale said the financial markets needed to think twice about jumping to this conclusion because the situation now was very different from in the past.
'If the financial markets are pricing in a sharp rise because they think in the past, every time the economy's growing quickly the bank's raised interest rates, I think they should think again,' Dale said during a panel discussion in London.
'Our forward guidance says clearly that's not the case.'
Dale, who is a member of the bank's rate-setting Monetary Policy Committee, said if financial markets were pricing in a quick rise because in the past Britain has been in step with the United States rates, they should also think again.
'The U.S. are about two or three years ahead of us in terms of their state of recovery,' he said.
Dale said if financial markets thought the unemployment rate would fall from the current 7.7 percent to 7.0 percent in 2015 and the Bank of England would instantly lift rates, they should also think again.
'We have said very clearly that this is a threshold not a trigger,' he said.
But he said if financial markets were basing their view on productivity and a different take on the economy than the Bank of England, then that was fine.
'What we are keen to do is to make sure they weren't thinking we are just going to behave like we have done in the past because the circumstances in which we are operating now are very different than they were in the past,' he said.
He said the Bank of England had made it clear that it did not know how quickly productivity would come back so it was uncertain how long interest rates would be kept low but it was using unemployment as a guide.
'By feeding off unemployment I can remain agnostic,' Dale said.
'In August we said our best guess is that it is as likely as not for us to hit the 7 percent threshold by the end of our forecast period about three years out, at the end of 2016.'
(Reporting by Belinda Goldsmith) Keywords: BRITAIN BOE/DALE
(Belinda.Goldsmith@thomsonreuters.com)(+44 207 542 2299)(Reuters Messaging: email@example.com)
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