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 30.

    As long as they don't take advise from the thick posh boy out of touch Tories,the give every body who holds their hand out wether legally unemployed or in this country Labour fools and certainly not the get power no matter what Libs. Why not get former successful Chancellors together and listen to them as they aren't constrained by the boringly safe and same political establishment anymore.

  • rate this

    Comment number 29.

    "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. "

    As opposed to simply sticking with their policy? This is simply waffle disguised as an article.

  • rate this

    Comment number 28.

    So what happens if HPs continue to rise? We'll continue to save. Will your 3 bed semi be 400k in 5 years time?
    The new builds viewed have built sky wards. Tiny rooms, no storage, no garden, no wins in bathrooms, is it only me who likes a window in a bathroom? So 3 lvls ' Town House' same amount of land. Where's the dining room gone? how are you fit a dining table in such a small lounge? nuts!

  • rate this

    Comment number 27.

    @24 Donkzilla

    No, due to the fragility of the banks, and the high levels of personal debt, it would crazy to burst the housing bubble just to make houses more affordable.

    The harm was done in the decade between 1997 and 2007 when house prices trebled. Correction will take three decades or more.

  • rate this

    Comment number 26.

    We won't buy a house atm. We have a deposit and both work 24k jobs. I work nights, Wife works days. We have a 3 year old. Where we live, Southampton, 190k gets you a horrid 1930s 3 bed with 1 toilet but a nice garden. 240k gets you a new build with 3 toilets and no garden. The Government, I suppose has to increase HPs to get us to buy but currently no thx. Ppl still ask 40k over 2006 prices. Nuts.

  • rate this

    Comment number 25.

    I cant believe this web page Whats the point in having 30 stories to comment on when in reality there probably only 2 that you can comment on ,i mean how frustrating =pic one scroll all the way down and there it is
    How about some stories we can comment on or are they limited to so many comments per story for a poll reason ?

    Im back to RT

  • rate this

    Comment number 24.

    @ 18. jgm2

    Agreed. All mortgages in default should be immediately foreclosed and property reposessed, the property bubble needs to be surgically lanced. This would crash market prices down to true value, creating opportunities for young people to buy a home. It would also give banks a much needed chance to start afresh with clean books, writing off all their toxic rubbish.

  • Comment number 23.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 22.

    11 Actionr

    'while subsidising ... their own land portfolios.'

    Back during The Imbecility I couldn't understand why a government would allow lending to run amok and house prices to soar. Surely, I thought, a prudent government would curb such madness.

    It was only when the expenses scandal revealed just how many MPs were building property portfolios that it finally made sense.

    Insider dealing.

  • rate this

    Comment number 21.

    #18 agree with all of these issus and therefore also remove demand for these houses by

    1) Sorting out the mass imigration of the last 15 years ie remove 5_000_000

    2) Sort out the demand on housing from family breakdown

  • rate this

    Comment number 20.

    2005 =the G8 declared peak oil they also said that it was all downhill from there for world markets 2007 banks go bust then we get to pay for their greed Britain is broke and Scotland wants to leave ,the we find out the government is recording our emails and phone calls ,the police are buying
    10s of thousands of rounds of ammunition and are practicing at army rages .

  • rate this

    Comment number 19.

    So what happened to the behind closed door talks about the lost tax revenues when \Scotland goes independent ?
    To much of a tacky subject ? and what of the oil and gas that comes in from Scotland that would have to be renegociated ,
    so what is the true cost to the British payers ?

  • rate this

    Comment number 18.

    Here's some guidance:

    1) Bypass the government and appeal directly to the public and explain that high house prices are NOT the foundation of any kind of sensible economy and have given us the last two major busts.

    2) Increase interest rates to around 5%

    3) Stop printing money.

  • rate this

    Comment number 17.

    Real wealth and money is only created by three basic things,

    What we extract from under our land, oil, coal, and other minerals.
    What we grow on our land, food, forests and other horticulture.
    What we make in our factories, by adding value to raw materials.

    These activities create wealth everything else just moves from one pocket to another, usually from the poor to make the rich richer.

  • rate this

    Comment number 16.

    @6 "Price stability"? Surely you jest!

    The MPC has paid less than lip-service to its mandate to control inflation, in pursuit of an unstated objective to preserve credibility in the sustainability of the UK's fiscal position. QE is designed to fund the medium-term budgetary deficit, but no one is permitted to admit this obvious truth.

  • rate this

    Comment number 15.

    Is it politically impossible to do something about the runaway costs of energy caused by the "green" movement? They will never be happy yet energy prices continue to spiral upwards to appease them. When do we call enough and learn to ignore them?

  • rate this

    Comment number 14.

    The MPV (and the new Governor) are economic idiots!

    The REAL economy matters or their banking buddies will have nobody the fleece.

    These men are fools and self deluded, but unfortunately able to do immense damage to the country as shown by the disaster of 2008 and their utter incompetence since.

    They all need sacking.

    Their policies need reversing - NOW! (or it is decades more of the same!)

  • rate this

    Comment number 13.

    We're not in a recession but the economy is hardly thriving yet we seem to have the makings of a new property bubble - even before the one that helped get us into this mess has popped. No matter what, that's where all the stimulus pumped into the economy seems to have ended up - especially all the Funding for Lending invented funny money. Looks like a disaster in waiting.

  • rate this

    Comment number 12.

    9 I like the idea of creating real money and not debt via the FBR. Incidently, no comment on the latest unemployment fall Steph? A large section of which was youth based? You seemed to have quite a bit to say when unemployment wasn't at an all time low? You also invented the term "underemployed" I believe as a way to attack the falls? :)

  • rate this

    Comment number 11.

    Housing costs: 500
    Travel costs: 400
    Nursery: 500
    Energy: 100-200

    If inflation is not the problem, then tell me what is the problem.

    Forward guidance/QE/ZIRP/FLS are just for increasing the four above and making all low/middle incomes poorer while subsidising the BTL, the Banks and their own land portfolios.

    Carney = King = Osborne = Brown


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