Welcome to the Lost Decade(s)
The Committee intends at a minimum to maintain the current highly stimulative stance of monetary policy until economic slack has been substantially reduced, provided this does not entail material risks to either price stability or financial stability.
In particular, the MPC intends not to raise Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate has fallen to a threshold of 7%, subject to the conditions below.
Very, very weak. From the press conference intro:
Today’s Inflation Report contains for the first time, in Chart 5.10 on page 47, the MPC’s projection for unemployment. It shows that, with Bank Rate remaining constant at 0.5% throughout the 3-year forecast period, the MPC’s best collective judgement is that the median unemployment rate at the end of the projection period is 7.3%. Chart 5.11 on page 48, also new in this Report, shows that unemployment is judged by the MPC to be as likely to reach the 7% threshold beyond the three year forecast horizon as before.
The MPC expects to fail. As with the Fed, we could have unemployment at 8% for the next century and the MPC cannot be judged to have deviated from its guidance.
Markets dropped on this announcement, so this is an effective tightening of policy versus what was expected. Osborne’s gamble failed.