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Carney failed to get full backing

Robyn Hall

August 14, 2013

External member Martin Weale voted against Carney’s plan to keep the base rate at 0.5% until unemployment fell to 7% which is dependent on three clauses which the Bank refers to as “knockouts” – meaning the committee voted 8-1.

The minutes stated: “One member of the committee, 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 forward guidance link between the bank rate, asset sales and the unemployment rate will cease to hold if it is likely that inflation will breach 2.5% in approximately two years from now.

But Weale said he intended to form his future judgements about the application of guidance and the knockout criteria in line with the framework adopted by the committee.

Vicky Redwood, chief UK economist, described Weale’s decision as “odd”.

She said the MPC has previously kept policy loose despite expecting inflation to be above target at horizons beyond 24 months and the current inflation forecast shows inflation is expected to be around 2.5% in a year from now.

She said: “So if the knockout had been shortened, presumably forward guidance would have suggested that an interest rate rise was in the offing.”

Marcus Bullus, trading director at MB Capital, said: “At first glance it’s tempting to see this as undermining the Bank’s flagship policy. But the lone objector, Martin Weale, opposed not the principle of forward guidance, but merely the timing.

“The markets struggled to digest such conflicting signals and there was no instant consensus on whether forward guidance was weakened or not.

“What was clear though was that the linking of interest rates to unemployment is unlikely to prompt a quick increase in rates. Office of National Statistics data showed that in June the jobless rate was stuck at a stubbornly high 7.8%.”

Members voted unanimously in favour of maintaining the base rate at 0.5% and leaving the current level of quantitative easing at £375bn.


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