Business

Bank of England adviser queries forward guidance policy

Bank of England governor Mark Carney Image copyright Getty Images
Image caption Bank of England governor Mark Carney says his forward guidance policy boost confidence to invest and spend

A senior Bank of England adviser has questioned the efficacy of one of governor Mark Carney's key policies.

Martin Weale, a member of the Monetary Policy Committee (MPC) which sets interest rates, said the policy on forward guidance might have "limited" impact if people did not understand it.

Forward guidance is aimed at giving the markets, businesses and consumers more certainty over interest rates.

Mr Weale was the only MPC member to vote against the policy in August.

But he did admit that economic output could increase by as much as 0.75% if the public really believed interest rates would not rise for two years.

'Unusual interest'

"We do not, as yet, have any firm information on how well the policy has been understood," he said in a speech in London.

"But, unless people have taken an unusual interest in what my colleagues and I have said about policy, it seems to me likely that the initial effects will be appreciably smaller than the numbers above."

Mr Carney has said that even if the unemployment rate falls below 7%, an increase in the bank base rate - currently 0.5% - is not guaranteed.

Mr Weale is concerned that the Bank's determinedly low-interest rate policy could stoke up inflation, particularly with the housing market showing signs of strong growth.

Mr Carney has said that if there are signs of a UK housing market bubble developing, as some economists fear, he could tighten lending requirements if necessary.

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