10 February 2014

Will The Bank Of England Wind Up Its Forward Guidance?

​Latest unemployment data shows the UK is rapidly approaching the key seven per cent threshold, and yet another strong service sector PMI for January suggests the country is in a much stronger position than most had predicted only a few months ago.

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Latest unemployment data shows the UK is rapidly approaching the key seven per cent threshold, and yet another strong service sector PMI for January suggests the country is in a much stronger position than most had predicted only a few months ago.

But it seems the Bank of England is in no hurry to raise interest rates. Speaking in Davos last month governor Mark Carney sought to extricate himself from his just six-months-old forward guidance on the bank base rate.

The Bank’s Monetary Policy Committee meets tomorrow (February 6th) and it seems governor Mark Carney and co will have to address Britain’s rapid economic growth

Nick Beecroft, Chairman of Saxo Capital Markets UK, says the MPC must “confront the embarrassingly rapid pace of economic growth and the imminent plunge of the unemployment rate through its seven percent threshold”

He expects a short statement that will tee things up for next week’s quarterly inflation report. Rather than shifting the goalposts on unemployment, say by moving the threshold to 6.5 per cent, Nick thinks the bank will seek to draw focus to other metrics such as wage and productivity growth.

 “R.I.P. forward guidance, long live old-style insight into the MPC's thinking and reaction function,” says Nick​​





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The value of your investments can go down as well as up.
Losses can exceed deposits on margin products. Please ensure you understand the risks.