UK Monetary policy trade-offs and forward guidance

by Sabrina I. Pacifici on August 6, 2013

News release: “At its meeting on 1 August, the Bank of England’s Monetary Policy Committee (MPC) voted to provide some explicit guidance regarding the future conduct of monetary policy. The Committee intends at a minimum to maintain the current highly stimulative stance of monetary policy until economic slack has been substantially reduced, provided this does not entail material risks to either price stability or financial stability. In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%, subject to the conditions below. The MPC stands ready to undertake further asset purchases while the unemployment rate remains above 7% if it judges that additional monetary stimulus is warranted.  But until the unemployment threshold is reached, and subject to the conditions below, the MPC intends not to reduce the stock of asset purchases financed by the issuance of central bank reserves and, consistent with that, intends to reinvest the cash flows associated with all maturing gilts held in the Asset Purchase Facility…Further information regarding the background to this decision can be found in the document Monetary policy trade-offs and forward guidance published alongside today’s Inflation Report.”

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