Bank of England governor Mark Carney has said there is “no immediate need to increase interest rates”.
He told BBC Newsnight the case for a rate rise would be examined in next month’s inflation report, but that it was important to look at the whole labour market, not just one indicator.
On Wednesday, the jobless rate fell to 7.1%, close to the 7% at which Mr Carney said he would consider a rise.
He also said the change, when it comes, would be very gradual.
Mr Carney was asked whether it was a problem that the unemployment rate had come down so much faster than the Bank of England had been expecting.
The Bank was not expecting the rate to fall to 7% for another two years.
“If our forecast is going to be wrong it’s better to be wrong in that direction,” he said.
He said that the 7% figure was one that he had used to capture the idea that unemployment was going to have to fall considerably before he would “even begin to think about” raising rates.
Asked by Jeremy Paxman whether he would be announcing a new threshold rate for unemployment, he said that would be a decision for the whole of the rate-setting Monetary Policy Committee (MPC) but that it was “really about overall conditions in the whole labour market”, and he did not want to focus on just one indicator.
He said that productivity in the labour market was also an issue and that there were still many people working fewer hours than they wanted to.
He played down the importance of the increased growth forecast from the International Monetary Fund, pointing out that “it’s coming off a low base” and the economy had still not recovered to its 2008 levels.
“The worst of the crisis is behind us but the financial system is not functioning as well as it could,” he said. “Uncertainty among households and businesses is still preventing investment.”
Mr Carney’s comments echoed those made by Paul Fisher, a member of the Bank’s Monetary Policy Committee (MPC), in a speech earlier on Thursday.
Mr Fisher said: “My own judgement is that we are still some way off the point where it is appropriate to start raising bank rate and that when it is time, it would be appropriate to do so only gradually.”
Mr Carney was asked about whether he would be happy for an independent Scotland to use the pound.
He stressed that it would not be his decision and the central bank would implement whatever Parliament decided.
But he revealed that he would be visiting Scotland next week to discuss it with First Minister Alex Salmond.
Mr Carney was talking to Newsnight at the World Economic Forum, in Davos.