BOE adopts explicit forward guidance


In a major policy change, the Mark Carney-led Bank of England lifts from the Fed playbook - adopting explicit forward guidance as it says it will keep its benchmark rate at 0.5% until the unemployment rate drops below 7% (currently 7.8%). The bank says it doesn't expect this to happen until at least 2016. Like Bernanke, Carney is quick to mention 7% is a threshold, not a trigger - meaning rate hikes are not automatic should unemployment drop below that.

Copycatting another Fed line, the bank says it stands ready to boost QE (currently dormant) if necessary.

"We are not at escape velocity," says Carney.

Meanwhile, traders - who sold cable expecting Carney to immediately boost stimulus upon his arrival at the BOE - continue to cover their shorts. FXB +0.8% today with the pound now buying $1.5475, up from about $1.49 on July 1. Related ETF: GBB.

By a wide margin, the FTSE 100 is the worst performer across the pond today, off 1%. Related ETF: EWU.

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Comments (2)
  • positivethoughts
    , contributor
    Comments (2040) | Send Message
     
    No government can afford to let interest rates go up. They have too much debt.
    7 Aug 2013, 11:08 AM Reply Like
  • Jason Burack
    , contributor
    Comments (2089) | Send Message
     
    The large banks are also holding hundreds of trillions worth of interest rate swaps in the OTC derivatives market betting that rates do not go up.
    7 Aug 2013, 11:38 AM Reply Like
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