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

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  • rate this

    Comment number 10.

    Excluding the heroes of London, most of the 'disposable' income is with the 50s-65 age group. These people have seen their annual pension plan reports show large falls in their expected retirement income (nett inflation), despite paying in more each year. They are not going to start spending whatever other savings they have however long rates say at 1%, although they might move them abroad.

  • rate this

    Comment number 9.

    Why don't they take a look at the Bradbury Pound? Where currency is produced by the BoE as real money and not as debt by a corporate entity.
    This needs to be the basis of the future.

  • rate this

    Comment number 8.

    The proposed use of more targeted measures is welcome. QE is the equivalent of carpet-bombing, what the economy needs is targeted stimulus hitting key areas that drive genuine economic growth.

    What isn't welcome is Carney et al throwing loose messages out to the markets (without substance), the markets move a lot quicker than the Bank.

  • rate this

    Comment number 7.

    if we don't start increasing gdp soon we will be going to hell in a handcart

    see OBR extra £19bn required on top of cuts proposed by GO

    Kicking can down road on future Austerity big time.

    The political picture is over shadowing the economic

    Get a grip and drive the economic argument or we are all going to get soaked

  • rate this

    Comment number 6.

    Central banks have skillfully, or more likely luckily, largely achieved price stability by printing huge amounts of token money to offset the fall in credit money as a result of deleveraging.
    This can't last forever otherwise the world's currencies will debase.
    So when 'tapering' starts expect financial panic & depression.
    Beyond a revolution nothing can stop it.

  • rate this

    Comment number 5.

    How can the MPC come out and say they rely on markets when as we see weekly, they are all being manipulated in some way shape or form by the very people who would be out of a job if the tax payer, hadnt saved their behinds.

    I hope if this is proven out new governor will take appropriate action and remove the front line dealer status as a very minimum.

  • rate this

    Comment number 4.

    I say the BoE is doing a great job. The rich get richer and are above the law, the poor get poorer. I'd say they are doing exactly what they should be doing: keeping the thieves in the City well above the plebs.

  • rate this

    Comment number 3.

    The BoE won't hike rates this time. The US will. (China will suffer). Our currency will be debauched by a carry-out trade used to inflate the assets of the rich world wide.
    PS Why no Comments on Nick Robinson's blogs? The only BBC political commenter but a trained Tory (Chair of an Oxbridge student Tory Soc.), his true blueness seems unchanged.
    PPS Is Nick Clegg on benefits, a no-job scrounger?

  • rate this

    Comment number 2.

    This comment will be removed but I thought what Stephanie had written was confusing until I read PoorJacques.

    Anyone want to clarify?

  • rate this

    Comment number 1.

    it's a mealy-mouuthed acknowledgement by you lot that King & Greenspan crashed the system by surprise interest rate hikes, 2006/7, known to becoming only by insiders. Toxic debt & CDSs then changed hands. Outsider banks here & in the US went bust. We paid.


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