Judging by the Bank of England’s minutes, officials had little to argue about this month on the biggest policy revamp since Mark Carney began forward guidance.
Comments by David Miles to Bloomberg News suggest otherwise. His Feb. 17 remarks point to a wider debate within the Monetary Policy Committee on slack in the economy that wasn’t described in the minutes yesterday. The document devoted a sole paragraph to sum up an overhaul of forward guidance that had preoccupied policy makers for weeks.
The disparity between the lack of detail and Miles’s revelation that there was a “range of views” on the MPC signals investors may have to look to interviews and speeches for deeper insights. That contrasts with August, when guidance was first introduced and the minutes offered a step-by-step guide to how the policy makers reached their decision.
“The idea that there wouldn’t be a full discussion of it is not likely,” said David Tinsley, an economist at BNP Paribas SA in London and a former BOE official. “There’s now a sense that disagreement and debate happens behind closed doors and there’s a united front after the event. That’s not what minutes are supposed to be about.”
Comments from Carney in the weeks leading up to the second phase of guidance on Feb. 12 -- in addition to the subsequent remarks from Miles -- hinted at deep deliberations that would historically have been disclosed in the minutes.
The rethink was prompted by a faster-than-expected drop in the unemployment rate that anchored the first approach to guidance. Data yesterday showed it has dropped to 7.2 percent from the 7.8 percent recorded when guidance started.
Asked on Feb. 12 if officials considered other options before settling on the new framework centered on spare capacity, Carney said: “We did discuss different things.”
“I’m very comfortable with what we’ve done,” he said. “I shouldn’t speak for other members of the committee, but I think there’s strong support for what we’ve done.”
The BOE’s central forecast is that spare capacity is about 1 percent to 1.5 percent of gross domestic product. Miles provided more insight on Feb. 17, hinting at divisions among the MPC and saying that, in his view, spare capacity may be higher than that.
“That’s part of the reason why it’s a 1 to 1.5 percent range,” he said. “But in terms of a central expectation I think the majority of the MPC believe it’s in a relatively tight interval.”
“We were surprised; after the Miles interview we expected we might learn a bit more about the range of views,” said Sam Hill, an economist at RBC Capital Markets in London. “If they’d intended guidance to be as formal, we’d expect the minutes to reveal some voting framework.”
There was a further indication today of a divergence of views, when policy maker Martin Weale suggested he had a different opinion to Miles on the amount of spare capacity.
In an interview with Sky News, Weale said that because many of the people who would like to work are on lower salaries, the impact of that on assessments of spare capacity “is to drag down the impression you would have of the labor market output gap very considerably.”
A spokesman for the central bank in London declined to comment on the minutes when contacted by Bloomberg.
The initial guidance program implemented in August saw the MPC pledge not to increase its key rate before unemployment fell to 7 percent, as long as three so-called knockouts linked to inflation and financial stability weren’t breached.
The BOE presented the new framework, as well as updated forecasts, in its quarterly Inflation Report. The document showed the bank’s approach to measuring spare capacity includes assessments of the medium-term equilibrium rate of unemployment and that the gap is concentrated in the labor market.
Measuring economic slack is complicated, and Simon Wells, an economist at HSBC Holdings Plc in London and a former BOE official, said the difficulties may have informed a decision not to review the discussion of the subject in the minutes.
A move to an approach that’s not fixed on a single indicator highlights importance of assessing individual members’ views. With the minutes lacking the detail many were anticipating, scrutiny of MPC speeches and media interviews might intensify. There may be 20 interviews and eight speeches by MPC members over the next three months, according to Carney.
“The whole of the U.K. outlook hinges on how much spare capacity there is, so the lack of any reference in the minutes shows just how much uncertainty there is,” Wells said. “I hope we will get back to a situation where there can be more differences of opinion between MPC members voiced so that we can have that discussion.”