The Bank of England expects to consider raising interest rates in 2015, a year earlier than expected, following a sharp fall in unemployment.

But the Bank tempered expectations of an early increase with the warning that the recovery remained fragile and rates could still remain low for several years.

The Bank governor, Mark Carney, said he expected growth to remain modest over the next couple of years while the economy continues to be hampered by a weak banking sector and stumbling overseas markets.

Speaking after publication of the central bank's quarterly inflation report, Carney played down concerns that the current 0.5% base rate would go up before real incomes began to rise and the recovery was secured.

"The economy is growing robustly as lifting uncertainty and thawing credit conditions start to unlock pent-up demand. But significant headwinds – both at home and abroad – remain, and there is a long way to go before the aftermath of the financial crisis has cleared and economic conditions normalise," he said in the report.

"That underpins the monetary policy committee's (MPC) intention to maintain the exceptionally stimulative stance of monetary policy until there has been a substantial reduction in the degree of economic slack."

In August the BoE said as part of its new policy of forward guidance that it would not consider raising interest rates before unemployment fell to 7%. MPC members agreed that unemployment was a strong indicator of slack in the economy. Figures for August show that rate has fallen to 7.6% after an unexpectedly sharp rise in job recruitment over the previous three months.

In response the BoE said there was now a three in five chance that the UK unemployment rate would hit 7% in mid-2015, compared with a previous prediction of late 2016.

Deputy governor Charlie Bean said forward guidance was still pointing to a rate rise later rather than sooner. He said: "The key message is that policy is not going to be related to growth rates but the elimination of slack."

Nevertheless, City analysts jumped on the Bank's revised forecast, saying it showed that the economy was recovering strongly and would overheat without a rise in interest rates possibly as early as next year.

David Nicholls, a manager at currency dealer UKForex, said: "With the UK jobless rate falling, sustained positive data on British growth and a housing market that is defying gravity, the timetable for interest rate rises is being brought forward. If data continues to be strong, we expect the first rate hikes to be at the start of 2015."

But business groups said they expected the bank to resist calls for an early rise, saying it was necessary for rates to remain low at least until the end of 2015.

David Kern, chief economist at the British Chambers of Commerce, said: "Carney stressed that reaching the 7% threshold would not necessarily trigger a rise in interest rates, and this leads us to believe that there will be no increase until the end of 2015.

"This will provide stability for businesses to invest and create jobs. In the meantime, the MPC must continue to combine forward guidance with a commitment to maintaining economic stability."

The Federation of Small Businesses said it also welcomed the governor's caution and called on the government to encourage business investment to prevent a return to low growth.

Frances O'Grady, general secretary of the TUC, commenting on earlier jobs figures, said that falling unemployment disguised a worsening in the standard of living of most workers.

"Britain's workforce is getting larger but poorer. It is encouraging that more jobs are being created but job quality is falling and close to a 20-year low. A record number of people are stuck in part-time jobs because they can't find full-time work, while real wages continue to shrink fast despite falling inflation."

Carney said concerns that the recovery was lopsided and favoured housing and finance over manufacturing and exports were misplaced. He said the recovery in the housing market was a positive sign that consumers were rediscovering their confidence in the economic outlook. He said the bank was monitoring the situation for signs of over-heating.

He said: "The greatest house price momentum is among houses in the upper value end of the market. We have a good line of sight on the housing market and we do look at measures of momentum and leverage and whether people are becoming over-extended. We don't just make policy for inside the Circle Line, but for the whole country."

He added: "We have a recovery that is centred on household spending. Three-quarters of growth over the next two quarters will come from household consumption or property-related consumption. That is not debt-fuelled consumption. It is out of income. So for that recovery to be sustained we need to see a rise in real incomes, which hasn't happened yet."