LONDON – The arrival of the Bank of England’s new governor has prompted an immediate change in the voting behaviour of the central bank’s policymaking panel, with all nine members deciding to maintain the status quo, minutes to their meeting earlier this month showed Wednesday.
The minutes were eagerly anticipated as analysts try to work out what change Mark Carney brings to proceedings. His vote to keep policy unchanged contrasts with the recent stance of his predecessor, Mervyn King, who had been voting for another monetary stimulus alongside two other rate-setters in order to shore up the U.K. economic recovery.
As well as keeping the 375 billion pounds ($579 billion) stimulus unchanged, the nine policymakers voted unanimously to keep the Bank’s main interest rate at 0.5 per cent.
A statement issued with the decision earlier this month said there was no need for a policy change because market pressures would help inflation fall back toward the bank’s 2 per cent target — the Bank is tasked with setting policy to achieve the target. Figures Tuesday showed inflation running at 2.9 per cent in the year to June.
By explaining their rationale, policymakers departed from their previous practice and underlined Carney’s interest in making the bank’s decisions more transparent. The minutes, published almost two weeks after the decision, have as a result lost some of their previous power to drive sentiment though the voting pattern will always be of interest.
Carney, who became governor on July 1, issued forward guidance on interest rates during his previous job as head of the Bank of Canada — the idea being that people would be more likely to borrow if they knew rates were going to remain low.
Vicky Redwood, chief U.K. economist at Capital Economics, said the united front revealed in the minutes suggests that Carney has persuaded the committee that forward guidance is a better policy tool than another stimulus. The Bank has been pumping money into the British economy on and off since March 2009, in the hope that it will lower long-term interest rates and encourage banks to lend, thereby boosting economic activity.
“Admittedly, some members still think more stimulus is required and just wanted to wait for August’s Inflation Report, when a range of policy options would be discussed,” Redwood said in a note. “Nonetheless, it perhaps looks as though a more formal form of forward guidance is as much as we will get next month.”
The decision to keep policy unchanged has come at a time when some economic indicators are predicting a pick-up in the pace of the British economic recovery. Jobs data, also released Wednesday, added to that seeming trend. The Office for National Statistics said the unemployment rate in May fell to 7.8 per cent in the three months to May, 0.2 percentage point lower than the previous two-month period.