"I find it inconceivable that, without forward guidance, I, or any of my colleagues, would have already voted to raise the Bank Rate and that the only thing that has stopped us is forward guidance"
- Martin Weale, BoE policymaker
The latest economic indicators are pointing towards a noticeable and increasingly broader revival of the British economy, and it is not a question that government measures and central bank's policies are contributing to the growth. Nevertheless, the recovery is limited as investors are expressing their concerns over the sooner-than-expected rate hike, hence, companies are not showing willingness to dive into credit. Regardless of the growing pressure on Mark Carney to shed the light on his future actions, BoE policymaker Martin Weale said that forward guidance helped to lower uncertainty in the short-term, and providing additional boost to the economy. On the other hand, it is hard to believe that this effect is large over the longer term. He also stressed out that the impact of current policy is not limited by the likelihood that it was not completely understood by the public.
When announcing the forward guidance, Carney pledged to hold fire until jobless rate had fallen to 7% or lower, and as long as consumer prices did not show signs of getting out of control. According to the latest forecasts, people working in financial markets believe the profile of future rates is about 0.25% lower for the next two years rather than it would be without forward guidance. In addition to that Weale predicts that a one-year delay of raising borrowing costs will push output by between 0.5% and 0.75%.
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