The Bank has a job to do and is getting on with it admirably

5th November 2015 By: Ranko Berich

The Bank of England has shown that it is perfectly comfortable with leaving rates low until a clearer picture of inflation emerges. Despite disappointing those who want an indication of when rates will rise, the Bank’s caution makes perfect sense as a strategy for dealing with the uncertain outlook.

The crux of the Bank of England’s thinking is that recent experience shows that forecasts for wages and productivity are highly uncertain. When forecasts have repeatedly been proven so wrong, what’s the rush to raise rates based on similarly uncertain forecasts today?

After these latest moves from the Bank, the implications for policy are clear. We won’t be seeing rate hikes until unit labour costs are on a solid upwards path and the MPC is eyeball-to-eyeball with inflation. Until then, speculation about credibility, or frustrations about the ambiguity of forward guidance are beside the point. The Bank has a job to do, and is getting on with it admirably.