DCSIMG

Market reaction to BoE guidance ‘surprises’ Bean

  • by ERIKKA ASKELAND
 

Charlie Bean, the deputy governor of the Bank of England, has admitted surprise at negative market reaction to the central bank’s aim to keep interest rates low in an effort to boost economic confidence.

Speaking at the annual conference for central bankers at Jackson Hole, Wyoming, Bean said that he was “a little bit” surprised that financial market scepticism has pushed up yields on British government bonds. The rise in the cost of government debt has been caused by expectations that the Bank will be unable to keep interest rates at a record low of 0.5 per cent for three years as economic recovery gathers pace and inflation remains high.

Bean explained that the policy of “forward guidance” was meant to reassure households and businesses that interest rates were not set to rise in the near future.

In an interview with Bloomberg, he said that the Bank is “communicating not just to market participants, but to people, to households and businesses, to give them a clear signal that interest rates are not likely to rise imminently”.

Bean’s comments come as Mark Carney, who took over from Sir Mervyn King as the Bank’s governor last month, is expected to face a grilling from business leaders as he makes his first official speech in Nottingham tomorrow.

Carney used the quarterly inflation report earlier this month to signal that interest rates would not be raised until 2016, when it expects unemployment to fall below 7 per cent, unless certain “knockout” conditions came to pass, including a rise in inflation beyond 2.5 per cent.

ERIKKA ASKELAND

 

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