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Carney axes jobs target in major forward guidance shift

by David Campbell on Feb 12, 2014 at 11:22

Carney axes jobs target in major forward guidance shift

UK unemployment is likely to hit Bank of England (BoE) governor Mark Carney’s 7% guidance threshold for higher rates this spring, but low productivity is likely to delay tighter policy.

In its regular Inflation Report, the bank pointed out that ‘robust’ economic growth had not yet begun to erase the UK’s yawning productivity gap, suggesting it had continued slack to remove.

Despite isolated evidence of inflationary friction, in particular in areas related to construction, spare capacity equivalent to around 1.5% of GDP remained concentrated in the labour market, it added.

‘The recovery in output has not yet been matched by a material pickup in productivity growth, the BoE said in a statement.

‘The remaining slack largely reflects an assessment that there is scope for companies to increase further the hours worked by their employees.

‘In particular, despite an increase in average hours worked since last summer, the number of people indicating they would like to work longer hours has remained elevated.’

Having seen its attempt to steer rate expectations toward the longer term derailed by unexpected growth, the monetary policy committee appeared unwilling to chain itself to too-specific guidelines.

The report forecast a ‘gradual recovery’ in productivity but added that it remained ‘highly uncertain’.

Old Mutual Strategic Bond fund manager Stewart Cowley is not surprised by the shift in forward guidance.

Cowley said: 'Setting strict economic targets for interest policy is like playing soccer with a rugby ball – it’s too imprecise and no matter your intentions it will bounce off course.

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1 comment so far. Why not have your say?

Once bitten twice shy

Feb 12, 2014 at 13:51

A new and vigorous credit cycle??? What so we can have another massive boom and another massive bust...great!!!

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