Mark Carney is said to be aligning Bank of England policy closer to the U.S. Federal Reserve next month by tying guidance on interest rates to economic developments, according to the Bloomberg monthly survey of economists.
In the poll of 43 analysts taken after the BOE signaled interest rates will stay at a record low longer than investors bet, 23 said the governor will opt to link a pledge on loose policy to economic data. In all, 18 said he will use a period of time instead.
Carney’s move on July 4, days after taking over the BOE, pushed the central bank into new territory, and he may go further next month when publishing a review into the use of thresholds for policy. A decision by the Monetary Policy Committee to hook rates to data would echo the Fed, which in December linked policy to inflation forecasts and unemployment.
The MPC held its key interest rate at a record-low 0.5% on July 4 and said it would leave its target for bond purchases at 375 billion pounds ($566 billion U.S.). Minutes of the meeting, showing how the MPC voted, will be released on July 17.
In a statement accompanying the decision, the MPC said investors had priced in higher rates earlier than policy makers anticipated. The remarks pushed the pound and gilt yields lower and signaled Carney’s intention to make his mark.
Carney’s move coincided with a pledge that day by European Central Bank President Mario Draghi to keep interest rates low for an "extended period." Their unprecedented measures followed Fed Chairman Ben S. Bernanke’s signal that the U.S. may be preparing to start slowing its $85-billion-U.S. a-month bond-buying program later this year. That sent bond yields higher.
The yield on the 10-year U.K. government bond was at 2.34% mid-morning in London, down four basis points from yesterday. After rising from 2.14% on June 18, the day before Bernanke made the comments, it has given up some of those gains this month. It is now lower than the 2.39% it traded at on July 3, the day before the MPC published its statement.
The governor’s next opportunity to outline policy will be on Aug. 7, when he holds a press conference to present new forecasts. The BOE will also release a review into how setting thresholds for guidance might work.
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