The Bank of England will keep the Bank Rate at 0.5% until unemployment falls to a 7% threshold.
Governor Mark Carney (pictured) said the Bank Rate would not change unless inflation threatened to get out of control or there was a danger to financial stability.
Quantitative easing will also not be reversed until the 7% threshold is reached either.
The Bank said: “Until the margin of slack within the economy has narrowed significantly, it will be appropriate to maintain the current exceptionally stimulative stance of monetary policy.”
It effectively means that, at the current rate of improvement, interest rates will not rise before 2015’s general election in 2015.
The central bank said that growth was likely to be “weak by historical standards”, even though economic recovery was “taking hold” and inflation was forecast to stay above its 2% target until the second half of 2015 based on market rate expectations.
Jonathan Harris, director of mortgage broker Anderson Harris, said: “While the Bank is not promising to keep interest rates low for a particular period of time, it expects that rates will not rise above their current level of 0.5 per cent before the third quarter of 2016. This is far more certainty than we have ever had and while it brings no comfort to savers, it will reassure overstretched borrowers who are worried about potential rate rises.
“We expect fixed-rate mortgages to fall even further on the back of this announcement. They may already be at historic lows but if lenders are to convince borrowers to opt for a fix when interest rates are highly unlikely to rise, then pricing needs to be attractive.
“Borrowers who prefer the certainty of a fixed rate and particularly those looking for something beyond the next three years when it is less certain what will happen with interest rates, should consider a five-year fixed-rate deal.”