No clarity from economists on clarity of BoE's new policy: Reuters poll

Thu Feb 27, 2014 4:10pm EST
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By Jonathan Cable

LONDON (Reuters) - The Bank of England's revamped forward guidance has split economists in a Reuters poll as to whether it has improved clarity about where British interest rates are headed.

While the 64 economists polled this week were unanimous in saying the Bank Rate would be left unchanged at a record low of 0.5 percent on March 6, there was no consensus on what they thought of Governor Mark Carney's updated guidance.

While inconclusive, this shows how tough it is for markets to make sense of the new policy, which is more complex than the previous one but aimed at reducing uncertainty over the timing and speed of any future interest rate rises.

Within six months of tying monetary policy to joblessness, the central bank was forced to abandon its initial plan after unemployment fell within a whisker of its 7 percent target three years earlier than when they first forecast it would.

Instead, it said earlier this month it would focus on 18 separate measures of data in order to gauge the right time to start raising rates.

Twenty-five of the economists who answered an extra question said the new guidance provided more clarity on the Bank's monetary policy path but 22 said there was less clarity.

"The previous incarnation of forward guidance was flawed but at least we knew what the BoE was looking at," said Peter Dixon at Commerzbank, one of the dissenters.

With the Bank focusing on measures including spare capacity in Britain's economy, business surveys and the number of hours worked, economists said it gave the BoE more room to operate but would also make it harder to guess the next moves.   Continued...

A plaque depicting Britannia is seen on the outside of the Bank of England in the City of London February 4, 2010. REUTERS/Toby Melville