Investments  

Carney praised over new guidance

Economists have claimed the new Bank of England governor has already made hugely influential moves after producing forward guidance last week on the trajectory of interest rates.

The Bank’s Monetary Policy Committee (MPC) made no dramatic moves – it left the size of its asset purchase programme at £375bn and held the lending rate at 0.5 per cent – but still caused a massive market rally by uncharacteristically issuing an accompanying statement.

The statement said an end to low rates even after 2015 was “not warranted”, a move designed to quash the view that rates may rise too soon and dent the economic recovery.

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Commerzbank’s global equities economist Peter Dixon said the comments “had the fingerprints” of new governor Mark Carney, who had hinted he saw the value in forward guidance.

“Mr Carney is a man who believes in forward guidance as a policy and it would be hard to disassociate the Bank’s movements from him,” Mr Dixon said.

David Tinsley, UK economist at Capital Economics, said the comments showed that comments made in the Bank’s May inflation report about the bank rate remaining flat until 2016 “remain appropriate”.

He added that all eyes have now turned to the MPC’s inflation report next month.

Vicky Redwood, chief UK economist at Capital Economics, agreed. “Our best guess is the guidance will consist of a commitment to keep interest rates at 0.5 per cent until unemployment has fallen below a certain threshold,” she said.