Magazine article Public Finance

Numbers Game

Magazine article Public Finance

Numbers Game

Article excerpt

Forward Guidance, initially hailed as a masterstroke from the new Bank of England governor, is starting to show signs of strain.

Back in the summer, Mark Carney used the new policy to signal that an interest rate rise would not be considered until the rate of unemployment fell to 7%. This wasn't expected to happen until 2016.

More recently, the Bank revised this forecast to the second half of 2015, but even that now seems pessimistic. The latest figures, for the three months to November 2013, show the unemployment rate at 7.1%, and it is expected to fall to 7% or below next month.

But, despite the implications of Forward Guidance, it is extremely unlikely that we will see an interest rate rise anytime soon. Carney has allowed himself some get-out clauses, and these are likely to come in handy.

Confirmation of this approach came through the minutes of the latest Monetary Policy Committee meeting, which stated that members see 'no immediate need' to raise rates even if the 7% threshold is reached in the near future. …

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