Bank of England split on forward guidance: reaction

Bank of England split on forward guidance: reaction

QuoteThe fact that the minutes of this month’s MPC meeting show that one member (Martin Weale) voted against the decision to implement forward guidance will hardly help to reassure the markets about how firm the MPC’s commitment is. Although he supported guidance in general, Mr Weale thought that the inflation “knockout” should apply over a shorter time period than the 18-24 months agreed. With gilt yields rising further after this release (after steady increases yesterday), the MPC may have to take further action to head off what it has termed the “unwarranted” rise in market rate expectations. Note that for some members (read Paul Fisher and David Miles), “the case for further monetary stimulus remained as compelling as in July” and they just wanted to gauge the impact of forward guidance before reconsidering a resumption of QE.

Quote It’s a bit surprising that the vote on forward guidance was not unanimous but you can sympathise with Martin Weale wanting a shorter time horizon on forward guidance because three years is an awfully long time when you’ve got a composite of PMIs very elevated and where inflation has been persistently above target.

Ross Walker, RBS

Quote We thought there was an upside risk to the employment number, we had a 60,000 rise. Obviously not quite enough to bring the rate down but a little bit better and the underlying trends have been a bit better.

Howard Archer, IHS Global Insight

Quote The August minutes reveal that there was almost unanimous support within the MPC for the Bank of England adopting forward guidance as a policy using the unemployment rate as a threshold and with three “knockout” clauses relating to threats to consumer price inflation and financial stability. Martin Weale was the sole dissenter, primarily reflecting the fact that he is concerned about the risk of rising inflation expectations and wanted a shorter time frame adopted for the knockout threshold relating to the MPC judging it more likely than not that consumer price inflation would be 0.5 percentage point above its 2.0% target rate on an 18-24 months time horizon.

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