Britain's ultra-low interest rates will remain in force until after next year's general election, the governor of the Bank of England signalled as he warned that economic recovery was "neither balanced nor sustainable".

Mark Carney left the City convinced that borrowing costs would be pegged at 0.5% for the rest of 2014 and beyond after saying that the UK could not cope with an end to the emergency measures adopted five years ago to counter the worst recession since the second world war.

The governor used the launch of the Bank's quarterly inflation report to reassure businesses and households that even when rates do rise, the increase will be gradual and modest. Carney insisted that the nine-strong monetary policy committee "will not take risks with this recovery" and indicated that it was comfortable with the City's view that interest rates would not rise before the spring of 2015 and then rise gently to 2% by 2017.

"A few quarters of above-trend growth driven by household spending are a good start but they aren't sufficient for sustained momentum," Carney said. "For a sustained and balanced recovery, the degree of stimulus will need to remain exceptional for some time."

Jessica Hinds at Capital Economics said that interest rates were unlikely to rise until late 2015 because of a lack of inflationary pressure in the UK.

"The [Bank's] monetary policy committee expects inflation to hover around the 2% target for the next three years even if interest rates remain at 0.5%. Our forecast is for inflation to be even lower. Accordingly, we continue to think that interest rates will remain on hold until the fourth quarter of 2015."

Philip Shaw, economist at Investec, is expecting the first rate rise in the third quarter of next year.

Labour's shadow chancellor, Ed Balls, agreed with Carney that the recovery was unbalanced and said it was up to the government to do more to address the issue.

"This is not yet a recovery for ordinary working people who are still facing a cost-of-living crisis. Monetary policy alone cannot secure a strong and balanced recovery and earn our way to higher living standards for the many, not just a few at the top. The chancellor also needs to act."

Carney emphasised that the UK economy is still smaller than it was before the financial crisis took hold in 2008, with below inflation wage growth and a limited pick-up in business investment. He said there were also mounting risks to the global economy posed by problems in emerging market economies.

The Bank announced significant changes to its "forward guidance" strategy after being forced to abandon its reliance on unemployment as a guide to interest-rate policy as a result of the sharper-than-expected fall in joblessness since the summer of 2013.

Under the new approach, Threadneedle Street will look at 20 indicators of how well the economy is performing to judge what spare capacity remains to be used up following the below-par performance of the UK during the deep slump of 2008-09 and the sluggish recovery that followed.

The Bank estimates that the slack amounts to 1%-1.5% of national income, which will be used up only gradually as the economy grows over the next three years. Threadneedle Street believes only half the spare capacity will have been used up by the end of 2014, even though it has raised its 2014 growth forecast from 2.8% in November to 3.4% – much higher than currently expected by the Treasury or the International Monetary Fund. The Bank is expecting the economy to grow by 2.7% in 2015 and by 2.8% in 2016.

The report noted that a lack of inflationary pressure – with inflation back at the 2% target in December for the first time in four years – spare capacity in the economy, and "headwinds" at home and abroad, meant that "bank rate may need to remain at low levels for some time to come".

It continued: "Even when the economy has returned to normal levels of capacity and inflation is close to the target, the appropriate level of Bank Rate is likely to be materially below the 5% level set on average by the [monetary policy] committee prior to the crisis.

"Raising bank rate gradually would guard against the risk that, after a prolonged period of exceptionally low interest rates, increases in Bank rate have a bigger impact than expected on output and spending."

The February inflation report provided the most detailed forecasts yet from the Bank, which is pencilling in a big surge in both business and housing investment of 11.5% and 23% respectively this year. Consumers are expected to run down their savings to compensate for another year of weak earnings growth.

Carney said forward guidance - his big policy initiative since taking over as governor from Lord Mervyn King last July - was working, and that it was now entering a new phase in which the Bank provided information about how and at what pace it would raise interest rates.

The governor said uncertainty about interest rates has fallen and "most importantly, businesses have understood the guidance."

Last summer the Bank would consider a rate rise only when the unemployment rate – then 7.8% – fell to 7%. At that time it was not expecting the jobless rate to fall to the threshold until early 2016.

The MPC now expects the next set of official figures to show that the rate fell to 7% in January, less than six months after the policy was set.

Despite his protestations economists said this next "phase" of guidance was more complicated, not least because the output gap could not be measured.

"The latest revised forward guidance from the MPC has become even more complex and provides little clarity on the key issue of how the committee will manage the process of raising interest rates," said Andrew Sentance, senior economic adviser at PwC and a former rates-setter at the Bank.

The Bank expects that wage growth will surpass inflation at some point in the second half of the year – easing the squeeze on household budgets – although it stressed that would be dependent on a pickup in productivity which has been weak in the UK.

"We are not complacent about this recovery at all. We are serene but not complacent. We need to see productivity come in to validate wage expectations," Carney said.