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BOE Officials United on Policy as Guidance Threshold Nears

The Bank of England Stands in London
The Bank of England stands on Threadneedle Street in London. Photographer: Simon Dawson/Bloomberg

The Bank of England’s nine policy makers were united this month on the need to keep the current policy stance as they prepared for the new phase of Governor Mark Carney’s forward guidance.

“With unemployment remaining above the 7 percent threshold, the committee’s policy guidance therefore remained in place and no member thought it appropriate to tighten, or to loose, the stance of monetary policy,” the BOE said in the minutes of the Monetary Policy Committee’s Feb. 5-6 meeting. While unemployment had fallen, the MPC said there was “scope to absorb spare capacity further” before increasing the benchmark interest rate from a record-low 0.5 percent.

The minutes also show the MPC didn’t hold a vote on the new phase of forward guidance Carney introduced this month. Under that program, the MPC will switch its focus from the unemployment rate to spare capacity and a range of other indicators. Carney said last week the BOE’s central measure of slack in the economy is about 1 percent to 1.5 percent of gross domestic product, and the minutes didn’t show any discussion of this assessment.

The minutes showed the MPC voted 9-0 to keep the key rate unchanged and the asset-purchase program on hold.

Unemployment Data

Britain’s unemployment rate unexpectedly rose in the fourth quarter, a separate report today showed. The pound fell against the dollar after the minutes and the labor-market data were published. Sterling traded at $1.6676 at 9:32 a.m. London time, down 0.1 percent from yesterday.

The jobless rate measured by International Labour Organization methods rose to 7.2 percent, the first increase since February last year, from 7.1 percent in the three months through November. No change was forecast, based on the median of 31 estimates in a Bloomberg News survey. In January, jobless claims fell 27,600, more than economists had forecast.

On the outlook for the economy, the BOE said there was momentum in the recovery and it expected this to continue over the coming quarters.

“Reduced uncertainty, easier credit conditions and the stimulative stance of monetary policy should support continued firm economic growth,” the minutes said. “Abroad, there had been modest upside news about the euro-area economy and some amelioration of risks relating to the euro-area periphery.”

The BOE also forecast that inflation will remain around its 2 percent target. Data yesterday showed consumer-price growth slowed to 1.9 percent in January.

The MPC said there are “heightened concerns about the risks” relating to emerging markets and that this could put downside pressure on global energy and commodity prices.

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