Forward guidance set to evolve

With the unemployment rate falling rapidly, the MPC has continued to stress that the reaching of the 7% threshold will not automatically trigger a rise in interest rates. Indeed, there have been hints that the threshold attached to forward guidance could be lowered or broadened beyond unemployment, to include growth and real incomes. Alongside the FPC’s willingness to use macro-prudential tools to rein in the housing market, this points to Bank Rate remaining at 0.5% for the sixth successive year.