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MPC member Weale casts doubt on BoE forward guidance impact

An external member of the Bank of England’s Monetary Policy Committee does not believe Governor Mark Carney’s forward guidance will be effective in stimulating the pace of recovery.

In August this year, Carney said the MPC would not consider lifting the base rate from its historic low of 0.5 per cent until UK unemployment fell below 7 per cent.

The caveats were the 7 per cent threshold will not be used if there is a more than 50 per cent chance of inflation rising above 2.5 per cent over the next 18 to 24 months, or threats to financial stability emerge.

The purpose of the guidance was to provide greater certainty about the future path of UK monetary policy.

Speaking at a National Institute for Economic and Social Research event in London, external MPC member Martin Weale said the impact of BoE forward guidance is likely to be “small”.

He said: “If forward guidance has done no more than to codify what people had expected the Monetary Policy Committee to do anyway, then its effects on the profile of expected future rates, and thus on output and inflation, should be expected to be small.

“If the policy simply clarifies what policymakers would have done anyway, the impact on the date of the first expected rise in Bank Rate is not likely to be large.”

It is the first time a member of the rate-setting committee has expressed doubts about the effect of the forward guidance policy.

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