Published September 12, 2013
LONDON – Bank of England Governor Mark Carney and three other policymakers from the Bank are speaking to parliament's Treasury Committee on Thursday.
Below are some of their comments, including excerpts from annual reports to the committee.
GOVERNOR MARK CARNEY:
"Our job is to make sure that (recovery is) not another false dawn that we saw earlier, a few years earlier, and to make sure that as soon as possible this economy reaches a form of sustained velocity so that it can sustain higher interest rates and continue to grow."
"Some of the uncertainties in the UK are larger than usual, we are well aware of that, what's happened to productivity, how much slack is there in the labor market, so what we've done is to provide the transparency around that."
REMIT OF NEW MPC MEMBERS
"New members will need to declare whether they are operating under the forward guidance... That member should indicate whether he is operating under forward guidance or setting his path, if you will, for monetary policy.
"There should be maximum transparency and I'm certain there will be. I wouldn't presume to dictate to new members."
"Our exit strategy from QE would be that we would look to adjust base rates first before we would consider asset sales."
"If recovery were to falter, if additional stimulus were to be required, we would consider whether to provide additional stimulus."
ECONOMY PICKING UP
"The economy is picking up and the stimulus is working. We are moving in the direction of the unemployment target. While it is early days we expect as well that we are consistent with the path to return inflation to two percent."
STIMULUS EFFECT OF GUIDANCE
"The summary I would give ... the effect would provide more effective stimulus by providing greater transparency ... And yes, market participants would understand the conditions that would be necessary for the MPC to begin to consider tightening monetary policy.
"Providing that greater certainty, providing that clarity and transparency affects monetary conditions, it affects business decisions."
MPC VOTING SYSTEM
"I think that it's a strength of the system - the one-member, one vote ... "I think it's a strength and it maximizes the transparency."
LONG-TERM INTEREST RATES
"It is an important rate but it is not the most important rate for the businesses and households in the UK."
He said 70 pct of the stock of household lending was floating, 50 percent of business lending and 30 percent of business lending was repriced within a year.
"For people and businesses who are actually borrowing the relevant rate is the floating rate which is linked to the Bank rate."
FORWARD GUIDANCE UNDERSTOOD
"My experience in talking to businesses, our experience in terms of surveys of household expectations, have been that the message (of forward guidance) has been understood."
INFLATION KNOCKOUT RATE
"I think having an inflation knockout is very crucial to the design of the guidance policy.
"Had we not had an inflation knock out I think there is greater chance that inflation expectations would have increased which we have put our pricing mandate .. at greater risk.
"It is important as a way of maintaining credibility that we have that knockout."
"While the degree of spare capacity in the economy and the diminishing impact of imported commodity prices should help inflation decline over the next two years, I remain concerned that there are upside risks, which would cause inflation to decline more slowly than expected..."
"As long as the recent restoration in business and consumer confidence can be maintained, the recovery is likely to prove sustainable. However, the risks facing the UK economy remain elevated, albeit somewhat lower than a year ago."
MARKET MOVES MAY BE TRANSITORY
"My own interpretation is that nearly all the market reaction has been to the good economic news. It may turn out to be somewhat transitory."
INFLATION KNOCKOUT IMPORTANCE
"I think it was essential that we made it clear that hitting the inflation target was, and remains, the centerpiece of monetary policy and I think there was a risk that without making that clear, people would say this guidance just says they're focusing now on unemployment and nothing else and inflation targets have been degraded or downgraded. So I think it's pretty important part of the whole guidance."
"There are signs that a recovery is taking hold in the UK economy. GDP appears to have increased by about 1% in the first half of 2013. Business surveys and reports from the Bank's agents have become more positive over the past quarter, and retail sales have grown strongly in July. This is welcome news after a sustained period of almost no growth.
"Nonetheless, I believe that this is not enough to make material inroads into the margin of slack in the economy. And there remain significant risks to growth, including the size of export demand from the euro area and the amount of credit supplied by the banking sector."
"We can't start fiddling with the parameters (or forward guidance) ... as we go along, we have to set out clear policy and stick to it, in my view."
"The recent introduction of explicit forward guidance should also support the recovery by making the existing monetary stimulus more effective, in part by providing greater clarity to businesses and households as to the conditions under which the currently accommodative stance of monetary policy will be maintained.
My view is that unemployment is likely to fall back only gradually, as I am relatively optimistic that the improvement in activity growth will be accompanied by a pick-up in productivity."
(Editing by Toby Chopra)