MPC member failed to back Carney over forward guidance, minutes show SkyGum Bank of England record shows Martin Weale wanted tougher conditions to avoid pickup in inflationary pressure Mark Carney, the governor of the Bank of England, failed to secure complete backing for his plan to provide forward guidance on the future path of interest rates, minutes of the August meeting of Threadneedle Street’s monetary policy committee showed. A record of the MPC’s discussions show that one member – Martin Weale – wanted tougher conditions imposed to ensure that the pledge to hold borrowing costs at 0.5% did not lead to a pickup in inflationary pressure. The MPC voted 8-1 in favour of Carney’s proposal that the committee would not consider raising rates from 0.5% until the unemployment rate fell below 7%. Three conditions, or “knockouts”, were set under which the forward guidance would not apply. One of them says that the MPC should consider raising rates if inflation threatens to be above 2.5% in 18 to 24 months time. Weale favoured a shorter period, the minutes said. “One member of the committee [Martin Weale], while supportive of the adoption of forward guidance, voted against the proposition in order to register his preference for a time horizon for the first inflation knockout that was shorter than proposed.” The minutes also showed that some MPC members were in favour of providing more stimulus to the economy through the Bank’s quantitative easing programme. Since 2009, the Bank has created £375bn of electronic money through the purchase of government bonds, and some MPC members said there was a case for expanding the scheme once the success of forward guidance had been assessed. “For them, there was merit in first supporting the implementation of forward guidance and waiting to gauge its impact, in particular on financial market prices, before reconsidering an increase in the committee’s programme of asset purchases.” Vicky Redwood, chief UK economist at Capital Economics, said the fact that Weale voted against the decision to implement forward guidance “will hardly help to reassure the markets about how firm the MPC’s commitment is”. “With gilt yields rising further after this release [after steady increases on Tuesday], the MPC may have to take further action to head off what it has termed the ‘unwarranted’ rise in market rate expectations,” she said. Bank of England Mark Carney Economics Larry Elliott theguardian © 2013 . | . skygum/mpc-member-failed-to-back-carney-over-forward-guidance-minutes-show/2013/08/14/
Posted on: Wed, 14 Aug 2013 19:50:35 +0000
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