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Business analysis: Interest rates: Will they or won't they? All these clarifications from the Bank are confusing us, says Nils Pratley

June 19, 2014

Nils Pratley



Andrew Haldane, the Bank of England's new chief economist, is a man at ease with an extended metaphor. Yesterday's speech in Scarborough borrowed a cricketing term - "the corridor of uncertainty", which refers to the difficulty a batsman faces in deciding how to play a well-pitched delivery - to describe the Bank's dilemma on interest rates.

Playing late allows more time to read the ball, but risks a hurried shot. Playing early allows a more gradual forward movement, but the danger is that the initial first movement is misjudged.

The Bank doesn't want to choke the recovery, but an emergency rate of 0.5% can't last forever when the economy is growing at 4%. So, tell us, what's the best strategy when you're in the corridor of uncertainty? Economic statistics lie, Haldane explained. Call it an elegant way of saying "dunno".

Much the same could be said of the speech by Martin Weale, the MPC member thought most likely to vote first for a rate rise. "Should wage growth fail to revive, that will, on its own, tip the scales further in favour of maintaining a strong monetary stimulus," he said.

So why did governor Mark Carney say last week that the first rise could be sooner than the market thinks? We assumed something had happened on the MPC to shift the scales, but there was nothing in the minutes to suggest so. All that's really changed, it would seem, is that Bank officials are anxious to tell us what a difficult decision they face on timing. We knew that, though. All this clarifying is very confusing.



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Source: Guardian (UK)


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