Mark Carney's guidance leaves financial markets feeling lost

The financial markets gave a confused response to Mark Carney's forward guidance plans yesterday as traders weighed up the likelihood the Bank of England's historic promise to keep monetary policy loose for three years will actually be kept.

Immediately after the plan was unveiled yesterday morning 10-year gilt yields rose 12 basis points to 2.55 per cent – representing a tightening of monetary conditions and the very opposite market reaction Mr Carney wanted as he seeks to bring down borrowing costs across the economy. Later, however, long gilt yields fell back to 2.48 per cent.

"The forward guidance contained in the Inflation Report was broadly expected but what was unexpected were the get-out clauses" Lena Komileva of the G+ Economics consultancy said. Referring to the Bank's statement that rates could rise sooner if inflation expectations get out of hand or financial stability looks in jeopardy, she said: "The Bank's pre-commitment to keeping rates at a record low is not as conclusive as it first appeared."

Alan Clarke of Scotiabank, suggested the Bank's new unemployment reduction threshold of 7 per cent could be met ahead of forecasts. "Our knee-jerk reaction is that 2016 is a rather conservative assumption" he said. "Our working assumption was that level of the unemployment rate could be reached at least a year earlier".

Sterling dropped nearly a cent against the US dollar after the Bank's guidance parameters were announced, before recovering to $1.549. The pound also yo-yoed against the euro, finally finishing up 0.75 per cent at €1.162. Mr Carney said the Bank stand ready to add to its £375bn QE programme "if further stimulus is warranted" to drive down rates.

The FTSE 100 share index, meanwhile, closed down 1.4 per cent. Traders were said to be underwhelmed by the guidance and concerned about the prospect of a tightening of monetary policy in the US.

But Mr Carney himself stressed the need to look to the longer term to judge the impact. "The move in markets is very marginal in terms of the expected rise" he told Sky News. "Different people have different views on when we're going to reach this for [7 per cent] level of unemployment".

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there