Is there more quantative easing on the way?
Despite Carney's pledge not to tighten rates until unemployment slips to 7%, sterling has climbed recently, as have government borrowing costs. Why the mismatch? %VIRTUAL-SkimlinksPromo%
SuspicionIn July the Bank of England described market predictions of interest rate climbs as "unwarranted", which Mark Carney re-emphasised again last week. It's a big change in communication: rarely has the Bank of England declared so emphatically the direction of future policy-making.
Carney is committed to monetary activism, intervening in the markets whenever necessary. (His role as Governor of the Bank of Canada was testament to that.) In contrast, predecessor Mervyn King rarely discussed future rate rises, or falls.
Clearly there is suspicion the economy will recover its moxie sooner than Carney thinks, which is partly why markets don't believe Carney can sit on UK interest rates for so long (which may risk triggering a new consumer credit boom, even with an economy still highly bruised in places from the last financial crisis).
Smoke signals"If the market undermines it," [Carney's guidance] economist Alan Clarke told the Telegraph, "I don't think they'll hesitate to send more smoke signals out at the very least, or flex their muscles and do more QE. If the Governor moves, he'll probably bring several of the committee with him."
Any more quantative easing will not be popular with savers, many whom view the current cheap Bank of England money as an indirect tax, helping keep the UK housing market artificially high while real-world inflation climbs. Especially tough for those on fixed incomes.
The new George Osborne-backed Help to Buy scheme is increasingly viewed with nervousness in some quarters. Home ownership would be better stimulated by natural supply-and-demand rather than easier-to-fund deposit schemes, they argue, fuelling the risk of a new housing price bubble.