The markets gave a mixed response to Governor Carney’s forward guidance innovation.
The “knockouts” economic escape clauses that would stop forward guidance if inflation of financial stability got out of control were viewed as stonger than expected.
The unemployment threshold of 7 per cent was considered to be higher than expected. Sterling strengthened.
After speaking to the Governor this afternoon I disagree with that verdict.
He is more dovish, and has already shown that he can get his way. Whilst committing himself to the inflation target he told me: “What we’re saying very clearly is that we won’t even begin to think about raising interest rates until we see unemployment rate at 7 per cent”.
He also got around the paradox that growth and inflation projections were up, by stressing that his inheritance was poor.
“Britain is coming off the back of the worst recovery since records began a century ago,” he told me. The unemployment rate has been basically stuck around 8 per cent for three years. It would take a significant move to get it down to 7 per cent.
The bigger picture across my interview and in the documentation is I think the concern about rebalancing the economy has been parked. No one reprised the line from Sir Edward George that “two speeds are better than none”, but the strategy for the economy now seems to be to accept that housing and consumption can get Britain to “escape velocity”, accept that imbalance, and then hope that excites the animal spirits of business investment further down the line.