This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at http://www.bbc.co.uk/news/business-25876877
The article has changed 5 times. There is an RSS feed of changes available.
| Version 3 | Version 4 |
|---|---|
| Davos 2014: Osborne says criticism of Bank of England unfair | Davos 2014: Osborne says criticism of Bank of England unfair |
| (34 minutes later) | |
| Criticism of the Bank of England's (BoE) forward guidance on interest rates has been unfair, Chancellor George Osborne has said. | |
| "I completely reject that forward guidance is a failure," he told a panel on monetary policy in Davos. | "I completely reject that forward guidance is a failure," he told a panel on monetary policy in Davos. |
| He added that the Bank's clear communication had helped create "a very strong set of data in the UK". | He added that the Bank's clear communication had helped create "a very strong set of data in the UK". |
| BoE governor Mark Carney had said an interest rate rise would not be on the agenda until unemployment fell to 7%. | |
| But figures on Wednesday showed again that the unemployment rate had fallen much faster than the Bank expected. | |
| Chancellor Osborne stressed that the unemployment rate was still only at 7.1%, and quoted Mr Carney's comment from a BBC Newsnight interview on Thursday that there was no need for an immediate rise in interest rates. | Chancellor Osborne stressed that the unemployment rate was still only at 7.1%, and quoted Mr Carney's comment from a BBC Newsnight interview on Thursday that there was no need for an immediate rise in interest rates. |
| The Bank of England had not been expecting the jobless rate to hit 7% for another two years. | The Bank of England had not been expecting the jobless rate to hit 7% for another two years. |
| In a separate speech, made in Davos on Friday, Mr Carney said that the UK's unemployment rate had fallen "faster" than the Bank had anticipated when it first set 7% as a trigger for a possible review of interest rates. | In a separate speech, made in Davos on Friday, Mr Carney said that the UK's unemployment rate had fallen "faster" than the Bank had anticipated when it first set 7% as a trigger for a possible review of interest rates. |
| Falling faster | Falling faster |
| However, he said that this would not lead to a hurried rate rise, and re-affirmed that the 7% unemployment marker "is merely the point at which the MPC begins to even think about adjusting policy". | However, he said that this would not lead to a hurried rate rise, and re-affirmed that the 7% unemployment marker "is merely the point at which the MPC begins to even think about adjusting policy". |
| He added that any review of forward guidance would come in February's Bank of England inflation report, and that "The MPC will consider a range of options to update our guidance". He did not suggest that forward guidance was to be abandoned. | He added that any review of forward guidance would come in February's Bank of England inflation report, and that "The MPC will consider a range of options to update our guidance". He did not suggest that forward guidance was to be abandoned. |
| But Mr Osborne said in his speech that the debate over forward guidance was only taking place because there was a recovery underway, highlighting the differences with the "gloomy debate" about the economy at Davos last year. | But Mr Osborne said in his speech that the debate over forward guidance was only taking place because there was a recovery underway, highlighting the differences with the "gloomy debate" about the economy at Davos last year. |
| He added that the growth in the economy was evidence that monetary policy had worked and that he had expanded the range of tools available to the Bank of England. | He added that the growth in the economy was evidence that monetary policy had worked and that he had expanded the range of tools available to the Bank of England. |
| On the sidelines after the discussion, a delegate describing himself as a market participant leapt to the defence of Mr Osborne and Mr Carney, saying it was perfectly clear that the 7% had been a threshold and not a trigger for the raising of interest rates. | On the sidelines after the discussion, a delegate describing himself as a market participant leapt to the defence of Mr Osborne and Mr Carney, saying it was perfectly clear that the 7% had been a threshold and not a trigger for the raising of interest rates. |
| Mr Carney, in his Friday speech, said that the UK's economic recovery "has some way to run before it would be appropriate to consider moving away from the emergency settling of monetary policy". | Mr Carney, in his Friday speech, said that the UK's economic recovery "has some way to run before it would be appropriate to consider moving away from the emergency settling of monetary policy". |
| Criticisms | |
| "It is widely recognised that our 7% threshold is not a trigger for raising the bank rate. Last August, the MPC said that when the 7% unemployment threshold was reached, there should be no assumption of an immediate, automatic change to its policy stance," he said. | "It is widely recognised that our 7% threshold is not a trigger for raising the bank rate. Last August, the MPC said that when the 7% unemployment threshold was reached, there should be no assumption of an immediate, automatic change to its policy stance," he said. |
| However, others have said that Mr Carney's comments this week have shown that the forward guidance policy failed. | |
| Economists at JP Morgan Chase said: "The guidance framework has not just failed to offer the clarity the monetary policy committee was seeking, but has, in our view, created unnecessary confusion and volatility in rate expectations." | |
| Schroders' European Economist, Azad Zangana, was also critical of the policy. However he defended the Bank's mis-forecast on the unemployment rate. | |
| "Most economists, including ourselves, came to similar conclusions (on unemployment) last year," he said. | |
| But he added: "We are critical of the use of forward guidance in the first place and the way that it relies on a single indicator to provide households, businesses and financial markets with a signal on the path of interest rates." |