"Dr Carney's forward guidance unveiled on August 7 has not had the desired effect on markets, with the first rate hike now priced in earlier than it was pre-guidance. Hence we suspect the governor will mount a defence on the forward guidance..."
- Economists at Investec Securities
During a speech in Nottingham on Wednesday the Bank of England Governor Mark Carney is expected to reaffirm his commitment to keep borrowing costs at record low until more than 750,000 new jobs are created. Meanwhile, that is not expected to happen earlier than 2016. Carney will face the scepticism of representatives of the CBI East Midlands, Derbyshire and Nottinghamshire Chamber of Commerce and East Midlands Institute of Directors, who are expressing concerns over earlier-announced forward guidance, saying interest rate will go up sooner rather than later. Friday's upward revision of the GDP growth gives even more grist to their mill. Additionally, since the announcement of the forward guidance, the yields on government bonds have risen sharply and the British Pound has strengthened against its major peers, reflecting expectations of market participants of a rise in rates.
In the meantime, forward guidance is already in place at the U.S. Federal Reserve, while the BoE has pegged the interest rates to the unemployment rate, which is suggested to reach 7% from the current 7.8% before the BoE starts to discuss a potential hike in borrowing costs. To protect the economy from risks of high inflation, Carney has already included escape clauses to assure the economy will continue gathering pace.
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