Outlook August, Schmaugust. The Monetary Policy Committee wasn't supposed to outline its views on the merits of offering the financial markets guidance on the future path of interest rates until next month. But the Bank of England yesterday went ahead and issued some guidance anyway.
Alongside its no-change quantitative easing decision, the MPC released a statement warning that the rise in gilt yields in recent months were "not warranted by the recent developments in the domestic economy". In other words: financial markets have got it wrong. The MPC will not be raising rates before 2016. At the earliest.
This is forward guidance, as favoured by the new Governor Mark Carney, in all but name. We certainly never had a statement this explicit accompanying a no-change monetary decision under Sir Mervyn King.
So forward guidance has, essentially, arrived. The only question to be answered next month is what "intermediate thresholds", if any, the MPC will attach to its commitments. What will it take to trigger a rise in policy rates? A fall in joblessness to a certain level, as favoured by the Federal Reserve? The economy growing at a certain speed? Or will it be a simple time commitment, something Mr Carney adopted at the Bank of Canada?
Amid all the excitement about rates, an important line in the statement went largely unnoticed. "There have been further signs that a recovery is in train, although it remains weak by historical standards," said the MPC.
It's a good point. And something one might have been unaware of from reading some of the commentary from City analysts this week. "Impressive stuff," "really encouraging" and "mojo" were some of the words used by Square Mile scribblers this week to describe the latest services survey data showing an expansion in activity in June.
This is well over the top. The plain fact is that we're still in a very large economic hole. Last week's GDP revisions from the Office for National Statistics confirmed that the UK economy has performed worse over the past five years than the rest of the G7 with the sole exception of Italy. The level of UK GDP is still a remarkable 4 per cent below where it was in early 2008.
The Treasury defence of this abject performance is that we had a bigger bust here in Britain than the likes of the US and Canada, which long ago recovered the ground they lost in the global financial crisis. But this isn't really any defence. The usual historical pattern in recessions has been for bigger falls in output to be followed by faster recoveries. If we had a bigger drop than our peers, we should really have had a more impressive recovery. Instead, the UK plummeted, bounced a little, and has barely moved since 2010. Macroeconomic policy, from the Coalition and the Bank of England, has not delivered.
The UK economy's "mojo" will be back when nominal GDP is growing at 5 per cent a year and unemployment is heading rapidly back to the 5 per cent rate that we took for granted before 2008. That's what a proper recovery would look like. And those are the intermediate targets Mr Carney and the MPC should be adopting in August.
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