Britain’s economy may have seen one of the fastest rebounds among industrialized nations last year, but half of 56 economists polled by Reuters think the Bank of England has lost some credibility over its handling of the forward guidance policy.
The policy – an advance notice that monetary conditions will not be tightened too fast or too soon – was a way of managing market bets, at a time when the scope for stimulating economies through conventional interest rate cuts was limited. Many say it was a necessary transition from the ultra-loose rate policy of recent years to a more normal post-crisis one. Indeed, the use of verbal intervention to guide monetary policy has been on the rise in recent years, as shown by this graphic on the Federal Reserve.
In a similar poll in November, a slight majority thought the Bank’s handling of its forward guidance framework had damaged faith on in its pronouncements, but the pool of analysts surveyed was smaller.
The improvement in sentiment may have to do with the fact that growth is picking up, unemployment is falling faster than expected and even inflation has come back within target.