Carney's Bank of England set to join forward guidance club

Tue Aug 6, 2013 7:00pm EDT
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By William Schomberg

LONDON Aug 7 (Reuters) - Mark Carney faces his first big test as Bank of England governor on Wednesday when the central bank spells out how it will try to stop higher borrowing costs from snuffing out Britain's economic recovery.

Carney and his fellow policymakers are likely to back the idea of giving a clearer picture of how long the BoE will keep its interest rates at their rock-bottom levels.

A growing number of major central banks are providing such forward guidance to help nurse their economies back to health after the damage of the financial crisis.

"The recovery could quickly lose steam if mortgage rates rise, so the BoE's job now is to use guidance to ensure that the stimulus is not withdrawn prematurely," said Rob Wood, a former BoE economist who now works for Berenberg bank.

The BoE will publish its views on the merits of forward guidance, as sought by finance minister George Osborne, alongside its quarterly economic forecasts at 0930 GMT. The announcement will be followed by Carney's first news conference since taking over as governor on July 1.

As central bank chief in his native Canada in 2009, he took what was then the unusual step of committing to putting interest rates on ice for more than a year during the worst of the crisis.

The task looks a lot more complicated in London.

Some top officials at the BoE have previously voiced concern about tying their hands on monetary policy.   Continued...