DCSIMG

Carney set to rule out cut in jobless target

Governor of the Bank of England, Mark Carney. Picture: Getty

Governor of the Bank of England, Mark Carney. Picture: Getty

  • by MARTIN FLANAGAN
 

BANK of England governor Mark Carney is expected to rule out cutting a key jobless target rate in his “forward guidance” policy when he unveils the Bank’s latest monthly inflation report this week.

It follows the governor’s recent embarrassment when unemployment fell to 7.1 per cent, just short of the 7 per cent target that triggers an assessment of whether historically low interest rates need to rise.

The Bank did not expect it to hit this target until 2016, and Carney later said the central bank would “take stock” of this slide in the jobless tally and that forward guidance in general would “evolve”.

City economists said they did not expect a fundamental change to the Bank’s guidance on unemployment, inflation or other macro-economic factors, but greater clarity to avoid financial markets second-guessing policy on interest rates.

Howard Archer, an economist with IHS Global Insight, said: “While it is not clear yet how the Bank of England will update its forward guidance policy, it looks like strong communication will be a major part of the bank’s efforts to limit interest rate hike expectations.”

Archer said this could include the minutes of the monthly Monetary Policy Committee (MPC) giving “more explicit guidance” of where the committee members see base rates going.

Economists said it was highly unlikely that Carney would cut the current jobless rate target that leads the Bank under forward guidance to take stock on monetary policy.

“It looks unlikely that the Bank of England will adjust its forward guidance policy by lowering the unemployment rate threshold for considering an interest rate cut from 7 per cent to 6.5 per cent or lower,” Archer said. “Mr Carney has indicated that he is against focusing on one indicator in the future, while MPC member Martin Weale has stated that he is against lowering the unemployment threshold as it could be quickly overtaken 
by events so would not help certainty.”

David Kern, chief economist with the British Chambers of Commerce, said: “There is little point in cutting the target unemployment rate to 6.5 or even 6 per cent. I initially thought the 7 per cent rate was a good idea. But in the light of what happened, what’s the point of just reducing the target? It would be better to focus on a basket of economic indicators in guidance.”

 

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