Politics & Policies

Unemployment in UK / Monetary policy forward guidance overhaul

The overhaul of forward guidance sees the direct link with employment dropped so the Bank can focus on a much wider range of indicators.

Presenting today’s Inflation Report the governor outlined “the next phase” of forward guidance, saying the Bank aims to see all spare capacity in the UK economy absorbed before it will lift the base rate and reduce quantitative easing.

“The MPC is for the first time today providing guidance that it is seeking to absorb all the spare capacity in the economy over the next two to three years,” Carney said. “That recognises that spare capacity is both wasteful and increases the risk that inflation will undershoot the target in the medium term.

”For a sustained and balanced recovery, the degree of stimulus will need to remain exceptional for some time.”

As part of this, the Monetary Policy Committee will now examine a range of indicators to guide the time of policy decisions, rather than watching the headline unemployment rate. This will see the Bank publish forecasts of 18 more economic indicators for the first time.

As well as unemployment, the MPC will monitor factors such as participation in the labour market, average hours worked and the extent of involuntary part-time working, surveys of spare capacity in companies, labour productivity and wages.

via Mark Carney axes employment link in forward guidance overhaul | News | Fundweb.

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