BoE holds fire, forward guidance to be adjusted

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"The current formulation of forward guidance is dead. With an unemployment rate of 7.1 per cent, a threshold of 7.0 per cent does nothing to suppress expectations of future tightening."
- James Ashley, an economist at RBC Capital Markets 

The U.K. policymakers decided to stay pat on their monetary policy as well as giving no hints about further adjustment to the forward guidance. Even though some analysts believed the BoE will start raising interest rates this month, the decision to keep the benchmark interest rate at 0.5% and the stock of gilt purchases at 375 billion pounds, came in line with the median forecasts. At the same time, the central bank did not issue a statement alongside the decision, in contrast with speculations that it would. Economists now believe Mark Carney will seize the opportunity to report on the upcoming changes in the monetary policy during the next week's inflation report. 

Regarding Carney's forward guidance– the policy aimed at reassuring market participants and the public that monetary policy remains ultra-loose and diminishing concerns the any changes will choke off the economic recovery. When the policy was first introduced in August, the central bank pledged not to raise interest rates until unemployment falls to 7% or below. At the time being, the BoE has no plans to start raising rates for some time, even despite the unemployment eased to 7.1% in three months to November. It was not a surprise that the Pound fell just 0.05% to 1.6300 following the announcement, as a move was widely anticipated by investors. 

© Dukascopy Bank SA

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