Forward Guidance Not Working Out For Bank of England

With speculation growing that the Bank of England will have to change its forward guidance rules just months after they were brought in, some economists are starting to argue that the policy should be abandoned entirely.

The policy, which involves explicitly signaling that interest rates set by the central bank will remain at their historic low of 0.5 percent until unemployment reaches 7 percent, was a central tenet of new Governor of the Bank of England Mark Carney’s changes when he arrived at the bank last summer. Now, it may be revised to include an unemployment target of 6.5 percent, after unemployment fell more quickly than anticipated, according to a report in the Sunday Times.

“That would make a mockery of a policy meant to provide clarity about interest rates. If the threshold can be lowered once, it can be lowered again, or raised for that matter,” Rob Wood, chief U.K. economist at Berenberg, argued.

CNBC

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