UK Forward Guidance To be Revealed on Wednesday

Next Wednesday, when the Bank of England publishes its latest inflation report, the governor will unveil the future of what’s known as “forward guidance”.

This was Mark Carney’s innovation of last August, which was intended to give a bit more certainty to all of us about the outlook for interest rates.

What he and the Bank’s Monetary Policy Committee said was that they would not even consider raising interest rates, barring some dramatic worsening in the outlook for inflation, unless and until the unemployment rate fell to 7%.

At the time, the Bank of England did not expect the unemployment rate to drop to that level until 2016. So it was seen as a strong statement that we could all bank on record low interest rates for many months and years to come.

In practice, it hasn’t quite worked out as planned, in that the unemployment rate is now only a whisker above 7%.

Which has led some to conclude that forward guidance has been a reputational disaster for Mr Carney and the Bank, and others to say that forward guidance is a bankrupt experiment.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza