Farewell forward guidance?

The combination of November’s further sharp fall in unemployment and hints from the Governor of the Bank of England suggest that the Monetary Policy Committee’s policy of formal, state-contingent, forward guidance might be about to expire just six months after its adoption. But forward guidance is not completely dead. Rather, the MPC looks likely to move towards a less formal version such as that employed by the ECB and latterly adopted by the US Fed. If this allows for a wider assessment of economic conditions and inflation prospects, it should reduce the dangers of a premature tightening of policy that would threaten to de-rail the economic recovery.