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Economics

Study Notes

Monetary Policy - Forward Guidance

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, IB

In the summer of 2013, the Bank of England began providing "forward guidance" on its monetary policy intentions.

Under forward guidance, the bank's policy main interest rate will remain at a record low of 0.5% until unemployment falls to 7%, in the hope that this will provide more certainty for borrowers and financial markets.

Forward guidance also operates in the United States. In the US the Federal Reserve has committed itself to maintain near zero interest rates as long as inflation is forecast to remain below 2.5% and unemployment exceeds 6.5%.

Recent articles on UK interest rates and the Bank of England

Martin Weale (MPC) Inflation is low now, but it won't stay that way. The Bank is ready to act: http://www.theguardian.com/business/2015/feb/15/in...

Bank of England's Mark Carney: Interest rate cut is possible as UK heads toward deflation: http://www.cityam.com/209392/carney-bombshell-rate...

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