EDITOR'S LETTERMerryn Somerset Webb
What is ‘forward guidance’?
We pay Mark Carney, the new Bank of England (BoE) governor, well over £800,000 a year. Is he worth it?
I don’t want to jump the gun – after all, his term has only just begun. But based on his first inflation report this week, I think we can safely say the answer is, well, probably not.
Carney’s big idea is something called ‘forward guidance’. We’ve been wondering with some interest whether this actually means more than it sounds like it means. But it looks like it doesn’t.
Immediately after the press conference for the BoE Inflation Report, Carney was reported as having offered forward guidance (we are now certain this means the same as ‘a forecast’) that base rates in Britain won’t rise above current levels until unemployment falls below 7% (ie, until around another 750,000 people get a job of some kind).
He also offered a bit of guidance (another forecast) that suggested 7% wouldn’t be reached until the end of 2016 at the earliest. The idea is that knowing that interest rates will stay low for a good few years will help us all by giving banks the confidence to lend, and us the confidence to borrow.
That sounds good. But it isn’t really much use.
• Read the full editor’s letter here: What is ‘forward guidance’?