NEW governor Mark Carney has signalled the biggest shift in Bank of England monetary policy since it gained independence in 1997. But setting out longer-term targets creates dangers as well as certainties.
There is an intention to keep interest rates at the current 0.5 per cent for three years, though this is not a promise, as some have assumed. There are various caveats in the new “forward guidance” that could prompt an earlier change of plan.
Raising rates depends on unemployment falling to 7 per cent within that period and, even if it does, the Bank will assess conditions in the economy before raising rates.
There is a requirement for inflation to stay below 2.5 per cent, which also confirms that inflation remains the main driver and is not being replaced by an unemployment target.
However, targeting and forecasting have to be taken with a slight pinch of salt.
The Bank has revised its growth forecast so many times that it will probably come right eventually if it keeps revising it often enough. Until then it looks like guesswork, which is not much use to anyone.
Therein lies the danger: that too much is taken on trust and the economy behaves as expected with a slow recovery requiring the longest period of unchanged low interest rates since the 1950s. If it does, then it means the decisions of the monthly meetings of the monetary policy committee are likely to be a little predictable.
There is also some concern that the recovery remains weak and will not take hold as promised. The revised forecasts look optimistic and the focus on unemployment as a tie-in to economic performance is questionable.
Some economists expect unemployment to rise, not fall, while inflation has a habit of defying predictions when governments introduce unscheduled changes affecting consumer behaviour. Savers in particular will be stuffed by the interest rate outlook.
The pound initially fell on the prospect of rates remaining low, then rose on the possibility of a rise earlier than planned. So much for certainty. The new policy looks like an enormous gamble.
There is still a chance that we will get more quantitative easing and should the economy suffer a sudden jolt of instability all bets will be off.
What happens then may prove to be the real test of the new governor.
Marmite in new taste test over TV advert
UNILEVER is in a spot of bother over matters of taste. Its current advert for Marmite has attracted 278 complaints – at the last count – to the Advertising Standards Authority and it now faces the possibility of a ban.
The ad is a spoof on animal rescue, with a team of inspectors searching people’s kitchen cupboards for neglected tubs of Marmite. Animal lovers don’t see the joke and Unilever has made a donation to the RSPCA following talks about animal welfare.
Crikey, have the British lost their sense of humour? If this were a sketch in a comedy show on television or at the Fringe it would surely be seen for what it is – a bit of satire.
The ad has been created by Adam & Eve DDB and follows a tradition set by Benetton and AG Barr – of Irn-Bru fame – whose ads met with similar outrage from those who thought them to be in poor taste. They certainly get noticed, which amounts to success. The Marmite example ironically mirrors the product itself – you either love it or hate it.