The Monetary Policy Committee's search for guidance (II)


The minutes of the July monetary policy meeting confirm that the MPC is indeed focussed on recent events in financial markets - and how they might guide policy going forward.

They also flag up something in my earlier post: That we should not only think about the forward guidance as a way to loosen the Bank of England's policy.

Its biggest value today may simply be to help the Bank stick with the policy it already has - in the face of market headwinds from across the Atlantic which might otherwise throw it off course.

These are the points from the minutes that stood out for me.

First, Mark Carney is encouraging the Bank's policy makers to think about their policy tools in a more holistic way than Sir Mervyn King did.

Start Quote

Even if some in the MPC have doubts about further stimulus (especially of the QE variety), the committee seems united in NOT wanting the Bank to be rushed into premature tightening by the Fed”

End Quote

"Given the already large size of the asset purchase programme [the notes said] there was merit in pursuing a mixed strategy with regards to the different policy instruments at the Committee's disposal."


When the Funding for Lending programme started last year, the then governor was keen to keep it in a separate compartment from quantitative easing and interest rate policy.

The minutes suggest that that is now changing. Under Mark Carney, the MPC will be considering the full sweep of policy options available to affect both the supply of credit in the economy and the level of demand.

That means not just more quantitative easing - which Mark Carney sounded a bit sceptical about in his testimony to the Treasury Select Committee, but also Funding for Lending, forward guidance and - potentially - elements of the Bank's macro-prudential policies regarding the banks.


That is probably also why the "doves" on the committee thought it worth waiting for that broader discussion next month rather than voting again for more QE. For the first time in a while, the vote in favour of no additional action was unanimous.

Interestingly, there does not seem to have been a formal vote on giving that guidance to the markets. I wonder whether that will change - after all, the guidance did represent an effort to loose monetary conditions, even if it was not a formal change in policy.

Second, the governor has not yet persuaded a majority of the committee that UK policy needs to be looser. In fact, it is not even certain, on the basis of these minutes, that Mark Carney himself thinks that the economy needs more stimulus, though I would strongly suspect that he does.

Forward guidance

The minutes say that "most members...think the policy setting is appropriate" but "others" would like to see more stimulus. We don't know whether the number of "doves" has risen or fallen since Mark Carney took his seat at the table, but it's fair to say it is less than five.

However, the minutes also make clear that all of the the MPC would like the economy to grow faster. The implication is that a majority might well come round to more stimulus, if the recovery doesn't pick up momentum in the second half of the year, as the Bank currently expects it will.

Finally, there's the point I highlighted at the start. Even if some in the MPC have doubts about further stimulus (especially of the QE variety), the committee seems united in NOT wanting the Bank to be rushed into premature tightening by the Fed.

The minutes say: "The recent rise in market interest rates, were it to be maintained, would represent such a premature withdrawal, but the proposed statement from the Committee should help to prevent that."

And indeed it did. Give or take. Most of the "action" in the next meeting will surely be about how, exactly, forward guidance can help the MPC any more.

Stephanie Flanders Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 190.

    @184 By your understanding, the Classical Gold Standard never existed, since fractional reserving pre-dated the demise of bimetallism. One merit of the CGS is that its consequential fixed exchange rates pretty much guaranteed a recession every couple of years, preventing the delusion of "growth forever". Consider the run-up to the Panic of 1857 and the American Civil War, for example.

  • rate this

    Comment number 189.

    I really don't think that we can say that the two world wars were caused by leaving the Gold Standard!
    No. But, they would have been impossible to fund while on it. That's why governments hate the gold standard, it restricts them - so they can't do stupid things like have hue programs to get elected, like NHS, War, Pensions, Benefits etc...

  • rate this

    Comment number 188.

    What we need to understand is that we must never try to prevent the mechanisms of capitalism from working (as we are now) as the market will simply fail to correct the imbalances if we do. Evidence - see what has happened since 2008 c.f. to 1929 - when a recovery was well under way in 5 years - but it isn't now.

    I see the error as being the intervention that prevents the price of money rising.

  • rate this

    Comment number 187.

    186.Sally the contrarian

    I really don't think that we can say that the two world wars were caused by leaving the Gold Standard!

    But I do agree that not democracy, but state corruption, perverted A. Smith's capitalism or indeed that of Marx - but there again we never really had the free movement of money or free exchange that we have had in recent decades.

    (English only bugs me occasionally!)

  • rate this

    Comment number 186.

    Valid spot, my grammar was wrong. If it bothers you, blogs must be your bane?

    "harking after some mythical nirvana"
    Mythical?! It existed until 1914, as soon as we left it, we had WWI, then WWII and the rest of the bloodiest century man has known. We could do a lot worse than "harking" back to that. Capitalism is simple, democracy perverted it.


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