New Bank of England chief set to axe Mark Carney’s rule on bank rates
- Carney’s system signalled the unemployment level below which rates would rise
- He said the ‘forward guidance’ rule reduced uncertainty among business
- However even when the jobless total fell below 7% rates stayed the same
- Bank watchers expect Bailey to act more conventionally on monetary policy
New Bank of England boss Andrew Bailey could tear up one of the key innovations of his predecessor, experts say.
Mark Carney introduced a system called ‘forward guidance’ where the Bank signalled the level of unemployment below which interest rates would rise.
This was indicated as being 7 per cent of the workforce – but when the jobless total fell below this, rates actually stayed the same.
Bailey was private secretary to Eddie George, the Governor of the Bank when it was given control of interest rates
When Bailey takes over in March, Bank watchers expect him to return to the more conventional operation of monetary policy followed in the past.
Bailey was private secretary to Eddie George, the Governor of the Bank when it was given control of interest rates.
George’s successor, Mervyn King, had previously rejected any notion of forward guidance, insisting that every rate-setting meeting began with an open mind rather than following a pre-planned route.
As it was, forward guidance was seen as having been discredited by the Bank’s failure to raise rates when it had said that it would.
Carney insisted that the policy was working because surveys showed it had reduced uncertainty in the business community regarding the future path of borrowing costs.
Bailey may use his first press conference presenting the monetary policy report as Governor, on May 7, to announce a change in policy.