Carney’s forward guidance plan

Account executive Brad Waring of James Brearley and Sons
Account executive Brad Waring of James Brearley and Sons
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The new Bank of England Governor Mark Carney has said that his new regime should boost UK economic growth.

He has stated that keeping interest rates at the current level until unemployment fell below 7 per cent was expected to boost the economy by more than 0.5 per cent of GDP.

Mr Carney has taken up his position as more and more data on the UK economy shows it is picking up steam.

This was evidenced last Thursday with the Organisation for Economic Co-operation and Development (OECD) stating that the recovery in the UK was “firming” in June. Recent figures have shown activity in manufacturing, services, construction and the housing sectors all gathering pace.

On Wednesday, the Bank of England revised its forecast for economic growth this year up from 1.2 per cent to 1.4 per cent and for next year from 1.7 per cent to 2.5 per cent. At his first news conference since taking over at the Bank of England Mr Carney set out his new regime of forward guidance.

Under this regime, the Monetary Policy Committee (MPC) will not raise interest rates until the unemployment rate falls, which he predicts will take about three years and the creation of 750,000 jobs.

There are however get-out clauses if necessary.

He said the Bank’s economic models had assessed the differences between what would happen with current market interest rates without the forward guidance and what would happen if interest rates stayed at the same level.

He said: “This remains the slowest recovery in output on record. We’re not at escape velocity right now.”

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