Mark Carney has warned that Britain's economic recovery has not yet gained enough momentum, in a sobering assessment after several quarters of growth.
Speaking at the Bank of England's latest inflation report, the governor said: “The recovery as yet is neither balanced nor sustainable, a few quarters of above trend growth driven by household spending are a good start but they aren't sufficient for sustained momentum."
Despite Carney's cautious comments, the Bank of England upped its forecast for the UK's growth this year to 3.4%, from a previous 2.8% estimate.
He added: “The recovery has gained momentum, output is growing at its fastest rate since 2007, jobs are being created at the fastest, quickest pace since records began and after four years above target, the inflation rate is back at 2%,"
Carney's analysis of the UK's economic recovery comes as he unveiled a radical new step for the Bank's interest rate forward guidance, dropping the 7% unemployment threshold as a target at which Bank officials would start considering raising interest rates.
In response to a question from HuffPostUK, Carney said: "The objective is not to have forward guidance forever. The objective is to have a recovery that moves into expansion and sustains expansion."
"Nobody enjoyed the last five years...the test has been to secure the recovery and the message to businesses and households is bank rates will follow the path that is consistent with jobs, incomes and expansion.
"We're not going to take risks with this recovery. Ultimately if the recovery proceeds there will be need for the bank rate to be adjusted, which will be gradual, limited and appropriate."
Policymakers will now assess whether to raise interest rates on four factors: how robustly wages were growing, how quickly productivity recovers in the economy, the sustainability of the recovery and how it decides to wind down its quantitative easing programme, which has so far injected £375bn into the economy in stimulus.
However, the Bank stressed that Britain's economy was too weak for interest rates to rise in the near future, which would mean millions of borrowers would not suffer a rise in mortgage repayments.
Carney said: "If and when the time comes that the economy can sustain higher interest rates, the bank rate will rise gradually."
Jonathan Loynes of Capital Economics said while the changes could help tackle the problems associated with excessive dependence on one single indicator - unemployment - they could make it more difficult to give a ''clear and straightforward message''.