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Bank of England adviser queries forward guidance policy | Bank of England adviser queries forward guidance policy |
(about 17 hours later) | |
A senior Bank of England adviser has questioned the efficacy of one of governor Mark Carney's key policies. | A senior Bank of England adviser has questioned the efficacy of one of governor Mark Carney's key policies. |
Martin Weale, a member of the Monetary Policy Committee (MPC) which sets interest rates, said the policy on forward guidance might have "limited" impact if people did not understand it. | Martin Weale, a member of the Monetary Policy Committee (MPC) which sets interest rates, said the policy on forward guidance might have "limited" impact if people did not understand it. |
Forward guidance is aimed at giving the markets, businesses and consumers more certainty over interest rates. | Forward guidance is aimed at giving the markets, businesses and consumers more certainty over interest rates. |
Mr Weale was the only MPC member to vote against the policy in August. | |
But he did admit that economic output could increase by as much as 0.75% if the public really believed interest rates would not rise for two years. | But he did admit that economic output could increase by as much as 0.75% if the public really believed interest rates would not rise for two years. |
'Unusual interest' | 'Unusual interest' |
"We do not, as yet, have any firm information on how well the policy has been understood," he said in a speech in London. | "We do not, as yet, have any firm information on how well the policy has been understood," he said in a speech in London. |
"But, unless people have taken an unusual interest in what my colleagues and I have said about policy, it seems to me likely that the initial effects will be appreciably smaller than the numbers above." | "But, unless people have taken an unusual interest in what my colleagues and I have said about policy, it seems to me likely that the initial effects will be appreciably smaller than the numbers above." |
Mr Carney has said that even if the unemployment rate falls below 7%, an increase in the bank base rate - currently 0.5% - is not guaranteed. | Mr Carney has said that even if the unemployment rate falls below 7%, an increase in the bank base rate - currently 0.5% - is not guaranteed. |
Mr Weale is concerned that the Bank's determinedly low-interest rate policy could stoke up inflation, particularly with the housing market showing signs of strong growth. | Mr Weale is concerned that the Bank's determinedly low-interest rate policy could stoke up inflation, particularly with the housing market showing signs of strong growth. |
Mr Carney has said that if there are signs of a UK housing market bubble developing, as some economists fear, he could tighten lending requirements if necessary. | Mr Carney has said that if there are signs of a UK housing market bubble developing, as some economists fear, he could tighten lending requirements if necessary. |
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