Monetary Policy Committee external member Martin Weale voted against the Bank of Engalnd’s forward guidance strategy in protest over the time horizon for the inflation “knockout”.
Last week, Bank governor Mark Carney announced the MPC will consider rate changes if unemployment falls below 7 per cent or its inflation forecast goes beyond 0.5 per cent of its 2 per cent target over 18 to 24 months. He called the two triggers “knockouts”.
The latest MPC minutes, published this morning, reveal Weale supports the idea of forward guidance in principle but voted against it to “register his preference for a time horizon for the first inflation knockout that was shorter than proposed.”
The minutes say: “One member, while accepting the principles of forward guidance, saw a particularly compelling need to do more to manage the risk that forward guidance could lead to an increase in medium-term inflation expectations. Setting an even shorter time horizon would make clear the forward guidance was fully compatible with the MPC’s commitment to meeting the 2 per cent inflation target in the medium term.”
The minutes stress the committee wants its commitment to the 2 per cent inflation target to be “beyond doubt”.
Some members said the case for further quantitative easing remains strong but accepted there is “merit” in allowing forward guidance to bed in.
The MPC voted unanimously in favour of holding QE at £375bn, and to maintain base rate at its record low of 0.5 per cent.