Forward guidance policy in ruins

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Bank of England governor Mark Carney is set to overhaul his flagship forward guidance policy on interest rates after just six months report Harris & Co accountants Northampton

The governor had linked a rate rise to a fall in unemployment, but the policy is being reviewed after the jobless level fell faster than expected.

The changes will come as Mr Carney delivers the Bank"s latest Inflation Report on the UK economy.

Mr Carney said last month the forward guidance policy needed to "evolve".

He said last August that the Bank would not consider a rate rise from their current low of 0.5% until unemployment has fallen to 7%.

At the time, it was not expected that this threshold would be reached until 2016, but the latest unemployment rate stands at 7.1%.

BBC business editor Robert Peston does not expect the Bank to set a simple new numerical target, but rather to give "soft guidance".

He said: "I expect him [Mr Carney] to say that he expects interest rates to remain at their current low levels for some considerable time.

"And to repeat that as and when they do rise, they will not return to the levels we took for granted as normal in the boom years.

"This form of soft forward guidance is certainly not the bold hard revolution of last summer"s announcement of a single statistical threshold for a rate change."

Only 6 months ago the new "forward guidance" expected us to hit the trigger point for a change in interest rates in 2017. As we are about to hit it now, the "forward guidance" polict will have to be revised. The Bank of England have no idea what is going on in the real economy.

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