Comment: MPC still has a role to play

Damp squibs rarely come more damp. That much was made clear yesterday as reaction trickled in to the Bank of England’s latest rate-setting meeting.

Scott Reid. Picture: Julie Bull

As was almost universally expected, policymakers voted to keep interest rates on hold at their historic low of 0.5 per cent. There was an equally unsurprising decision to peg the monetary stimulus programme of quantitative easing (QE) at £375 billion.

Borrowing costs have been sitting at their current record low since the depths of the financial crisis in early 2009 – much to the relief of hard-pressed borrowers and the chagrin of savers.

With no further commentary offered by rate-setters yesterday, analysts and pundits were clearly struggling to get excited. Ray Boulger, of mortgage adviser John Charcol, encapsulated sentiment with a note entitled: “These MPC meetings are getting even more boring.”

Yet there was some significance attached to this month’s gathering. It is almost certain to be the last held under the auspices of the bank’s flagship forward guidance policy, which pledges no rate hike will be considered until unemployment has fallen to 7 per cent.

With Britain’s surprisingly robust economic recovery pushing the jobless rate to within a whisker of that target – at 7.1 per cent – bank governor Mark Carney and fellow policymakers have had to stress that they are in no rush to push up the cost of borrowing.

Next Wednesday should see some astute tinkering with the forward guidance as the bank publishes its latest economic and inflation forecasts and stages a news conference. Carney has already indicated that a “range of options” on how to adjust the pledge will be spelled out.

Some commentators have suggested that a straight cut in the unemployment guidance threshold, possibly to 6.5 per cent. That appears a wild card, with the rejigged policy more likely to broaden the range of indicators available to policymakers.

Options include wage growth, further economic caveats or copying the US Federal Reserve’s “dot chart” – a published matrix of each policymaker’s view on interest rate direction.

It will prove the first big test of Carney’s credibility since the Canadian came on board last summer. And with the markets pricing in at least some chance of a rate hike in the latter part of this year, he may struggle to convince a nervy public that the bank is in no rush to hit the trigger.

After 60 meetings in succession at which interest rates have been frozen, there is an argument to switch to a less frequent timetable, perhaps quarterly. Why bother putting everyone through this monthly charade?

Such a move would be misguided. Britain’s recovery is far from sealed, other key economies are stalling and money markets remain volatile. The bank’s forward guidance could be overtaken by events at any time.

Sony slowly adjusting to changing fashion

With the CD and Walkman to its name, Sony has an enviable track record of innovation. But as an old-school Japanese corporate leviathan it has often been slow to react.

Its need to slash 5,000 jobs, flog off its PC unit and restructure TV manufacturing have been a long time coming.