Flash: BoE likely to introduce state-contingent guidance – Goldman Sachs

FXstreet.com (New York) - According to the Economics Research Team at Goldman Sachs, “On the completion of its assessment in August, we expect the BoE to introduce state-contingent threshold guidance.”

More specifically, this entails a commitment to keep interest rates low, conditional on observable economic parameters. Governor Carney has been a strong advocate of threshold guidance and, while others on the MPC appear less enthusiastic, we expect his views to win through.

No easy solutions on horizon

However, “the precise choice of thresholds is more uncertain. In making its choice, the MPC will need to balance a number of conflicting constraints – the thresholds need to be broadly consistent with the MPC’s inflation target remit, the choice of thresholds must induce the expectation that interest rates will be held at a low level for a long time (otherwise, a key purpose of adopting thresholds would be negated), the thresholds need to be robust to a wide range of different economic scenarios; and the thresholds need to be widely understood by the public.” the team adds.