Hawks call for Carney's strategy to be curtailed
Splits over Bank of England Governor Mark Carney's landmark forward guidance strategy emerged yesterday as a dissenter expressed "compelling" fears over spiralling inflation.
Martin Weale, among the Monetary Policy Committee's hawks after previous votes for interest rate rises, called for tougher constraints on Carney's plans to stick to ultra-low borrowing costs until the unemployment rate falls to 7%, minutes of the committee's meeting two weeks ago showed.
One of the three "knock-outs" for the guidance is triggered if the MPC considers it likely that inflation will be half a percentage point or more above its 2% target in 18-24 months.
But the minutes revealed that although "supportive" of guidance, Weale saw a "particularly compelling need to do more to manage the risk that forward guidance could lead to an increase in medium-term inflation expectations".
The rate-setter wanted an "even shorter time" horizon to convince financial markets that the bank's initiative was compatible with hitting its 2% inflation target. The Bank's Consumer Prices Index benchmark stands at 2.8%.
Jeremy Cook, chief economist at foreign exchange firm World First, said of Weale's stance: "This is a nod to the bank's mandate as an inflation controller, not that it means much at the moment, given they have not been within driving distance of target for a long time."
The minutes also made clear that some MPC members still think the case for more money-printing "remained as compelling as in July", although they are holding fire on votes for more quantitative easing to assess the impact of forward guidance on financial market prices.
Bank of England inflation rate target