Bank of England shows united front on forward guidance

The Bank of England presented a united stance on its controversial forward guidance policy, with all members of the Monetary Policy Committee voicing its support.

The committee voted unaninously to keep quantitative easing at £375bn and the bank rate at 0.5 per cent, minutes from the meeting on September 3 and 4 reveal.

The committee agreed its policy of forward guidance, whereby the bank rate will not be raised until unemployment falls to 7 per cent, as long as certain conditions are not breached “remained in place and no MPC member thought it appropriate to tighten the stance of policy at the current juncture”.

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But the minutes added that “members had different views about the extent to which a further loosening of the monetary stance might be warranted,” if momentum in the economy continues to pick up.

Markets reacted unfavourably to the introduction of the policy, as some believe unemployment will fall to 7 per cent more quickly than the Bank has forecast, prompting a raise in interest rates.

Vicky Redwood, chief UK economist at Capital Economics, said: “The minutes of this month’s UK MPC meeting suggest that the committee is happy with its policy stance, in spite of the arguably disappointing impact of forward guidance.

“No-one thought that any of the ‘knockouts’ that would invalidate the recent forward guidance had been breached. But equally, those who previously thought that more stimulus might be needed have backed away from that view and the vote to leave QE on hold was 9-0.”