Bank of England plan not a failure: British economic minister

There is evidence the policy works, says George Osborne

DAVOS, Switzerland – George Osborne, Britain’s economic minister, dismissed suggestions Friday that the Bank of England’s strategy to link monetary policy to unemployment has been a failure after its governor gave a clear hint that it would be scrapped.

A day after Mark Carney said he was against “unnecessarily focusing too much on one indicator,” Osborne told a panel at the World Economic Forum that the governor’s plan to change the guidance was evidence the policy “works.”

Last year, the bank introduced “forward guidance” to its monetary policy framework, whereby it would not consider raising rates from their super-low levels until the unemployment rate was down at 7 per cent. Figures this week showing the U.K.’s unemployment rate down at 7.1 per cent stoked speculation that the bank would start raising interest rates soon.

Without a clear communications strategy, Osborne suggested unemployment would not have fallen as much.

“I cannot see this as a failure of monetary policy in the U.K.,” Osborne said.

Though Carney is due to outline his views further in a speech Friday, some analysts were surprised by his comments.

“It seems premature to consign it to the scrap heap just yet, given the threshold was always a ‘staging post’ and not a trigger,” said Michael Hewson, senior market analyst at CMC Markets.

The pound was little changed after the comments. Against the dollar, it was down 0.1 per cent at $1.6617. The pound has been one of the world’s best performing currencies in recent months as traders priced in the possibility that the central bank might raise its main interest rate from the record low of 0.5 per cent sooner than expected following a run of solid economic data, particularly in the labour market.