Trying to assess when historically low interest rates will rise is getting close to deciphering a central bank version of the hokey-cokey. “You put your rate guidance in, your rate guidance out…”
Mark Carney, the governor of the Bank of England, introduced forward guidance as a keystone of his tenure when he took up office last year. But MPs on the Treasury select committee quizzing the governor on the policy yesterday were not the only ones puzzled by apparent flip-flopping at the top of Threadneedle Street.
Carney played down the idea of imminent interest rate rises. All well and good.
But barely two weeks ago, in his speech at the Mansion House in the City of London, the governor rattled financial markets by suggesting interest rates could go up “sooner than markets currently expect”.
That led many to think rates would go up sometime around November’s inflation report, much earlier than the previous consensus City forecast of next spring.
However, the Bank boss was on a different tack yesterday, telling MPs that he and the rest of the Bank monetary policy committee (MPC) now believe there is more spare capacity in the labour market than they had previously thought.
This would imply less inflationary pressure and less pressure therefore to put up rates. It has some echoes of Carney’s guidance last year that unemployment hitting a threshold of 7 per cent would be the trigger for the Bank to consider putting up rates.
The governor said at that time he did not believe this scenario would happen until 2016, only to scrap unemployment as the sole threshold when it went below 7 per cent within a period of months.
That threshold was replaced by the Bank last February with 18 economic indicators to help judge rate movements.
It is not that the governor is chronically indecisive or that forward guidance is a busted flush. He is right that, while the first rate rise attracts neon lights, it is the general direction and pace of rate rises that are more important.
But maybe the Bank should consider the perils of its forward guidance becoming a running commentary, with all the risks associated with sudden jolts and unhelpful u-turns.
Nobody wants to be kept totally in the dark on rate policy. But fewer, and therefore less transient, verbal interventions from the authorities might be a good halfway house.
Carpetright remains stuck on the floor
THE woes of Carpetright continue, with another slump in profits. The retailer has experience several bad years now. But the performance is entirely consistent with the dreadful backdrop it is trading against.
Carpets are a big-ticket item. If consumers feel squeezed they tend to make do and mend, maybe splash out on a treat every now and again, but do not tend to pay out hundreds of pounds, even thousands of pounds, on carpets.
Carpetright’s future is likely to be underlaid with uncertainty for some time.