It’s Super Thursday and the City scribblers can barely contain their excitement. It is the day when they get not one, not two, but three big pieces of information about the economy from the Bank of England.
Threadneedle Street will announce its latest decision on interest rates. It will publish the minutes of the meeting of the Bank’s monetary policy committee at which that decision was made. And it will present the quarterly inflation report, its take on the state of the nation.
So instead of the previous drip-feed of information, there is now going to be a data dump. The idea is that it will make the Bank’s decision-making process more transparent, accountable and predictable. Households and businesses will have a better grasp of what Threadneedle Street is thinking and be able to plan accordingly.
Well, perhaps. This looks suspiciously like a super-charged version of forward guidance, the big initiative of Mark Carney when he became the Bank’s governor two years ago. Forward guidance proved to be a bit of a dud, not because of the way it was communicated but because of the Bank’s inability to forecast the economy accurately.
The script is relatively easy to write. Interest rates are not going up immediately, although some MPC members will have voted for them to do so. However, strong growth and the pick up in earnings mean that the time is getting closer when monetary policy will be tightened. Markets will adjust their expectations about the timing of any move according to how many hawks vote for a rate rise and the tone of Carney’s comments at his press conference.
Doubtless, the new system makes life easier for the governor, who is a lot busier now that the Bank has responsibility for policing the financial system as well as monetary policy. But the information overload will make it harder not easier for the Bank’s thinking to be scrutinised. And that matters, given that Threadneedle Street failed to spot the crash coming in 2007, failed to ease policy quickly enough in 2008, was persistently over-optimistic about the pace of recovery from 2010 onwards, and may be about to get it wrong again.
