Is a central bank more effective if we know how its managers are thinking and what its next moves are likely to be? It is fashionable to think so and the announcement by the Bank of England’s new governor, Canadian Mark Carney, that the UK central bank will provide forward guidance puts it on a par with the Federal Reserve in the US and the European Central Bank.
As things stand, forward guidance in the UK is being used as a way of telling markets that even though the economy seems to be picking up, the Bank of England is in no hurry to reverse its loose monetary policy by raising interest rates from the current 0.5% level.
