BoE presses fast forward on guidance

The Bank of England has drastically revised its forecast of when UK unemployment will fall to 7%. That raises the question of whether interest-rate guidance actually performs any useful function

The Bank of England's interest-rate guidance initially signalled an extended pause, with rates at a rock-bottom 0.5% for as long as three years. But a surprisingly rapid economic recovery has meant the BoE's Monetary Policy Committee has hit the fast-forward button on its forecast of when UK unemployment will fall to 7%—the point at which the MPC will consider raising rates.

The market, which always thought a rate increase might come sooner rather than later, has been proved right so far. But the BoE may yet stick to holding rates lower for longer.

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