MPC's David Miles and Paul Tucker defend Bank's forward guidance

 

Senior members of the Monetary Policy Committee (MPC) have come out in force to defend the Bank of England's flagship forward-guidance policy.

Yesterday, David Miles, an external member of the MPC, rebuked those who claim guidance has backfired as guilty of "Alice in Wonderland logic". And Paul Tucker, the outgoing deputy Governor, in a separate speech, said criticisms of the Bank's knock-out clauses attached to forward guidance are "a bit silly".

The twin interventions followed a speech by Ben Broadbent on Monday where the other external MPC member said reports that the Bank would be "forced" to raise interest rates if unemployment fell to 7 per cent were misleading.

The flurry of activity suggests Bank policymakers are determined to correct what they regard as market misapprehensions over the meaning of its guidance policy. Last month, the Bank said it would not even consider tightening monetary policy until the unemployment rate fell to at least 7 per cent, subject to inflation remaining under control – something it did not anticipate occurring until the second half of 2016. But, since then, traders have brought forward their estimate of the first interest rate rise to early 2015.

Mr Miles said to Northumbria University that he was more optimistic about the economy than at any time since he joined the MPC in 2009 and added it was "a rather Alice in Wonderland, upside-down logic" to the notion that the Bank would be unhappy to see strong signs of recovery.

"I would be pleased if growth turned out to be strong, productivity improved and inflation moved back towards the target level over the next 18 months," he said.

Mr Tucker revealed in his speech to the Association for Financial Markets in Europe he had seen "merit" in setting a real GDP growth target for forward guidance, but defended the policy settled upon by the MPC.

"There are conditions in which it would be very easy for the financial markets, businesses and households to jump to the mistaken conclusion that monetary stimulus will soon begin to be withdrawn," he said. "Given the slack in the economy the committee is not in a rush."

Figures released yesterday by the British Bankers' Association showed the first annual increase in consumer credit for four years occurred last month. The BBA said the figures marked a "turning point" as consumers are encouraged to spend by a recovering economy.

The total outstanding stock of credit-card debt, personal loans and overdrafts rose to £80.1bn, 0.3 per cent higher than the same month a year earlier. This was driven by a £175m rise in credit-card lending while £99m in personal loans was paid off. Mortgage lending is also at its highest level since 2009.

David Dooks, the BBA statistics director, said: "There's a growing mood that things are not going to get worse, that we are at a turning point. I would hesitate to use the word adventurous, but consumers are being less defensive."

Howard Archer, at IHS Global Insight, said: "It is likely that markedly improving consumer confidence means that people have become more prepared to borrow in recent months."

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