Is Carney right to gamble on unemployment ?

Mark Carney

In the wake of a radical move by Governor Mark Carney to keep interest rates low until 2016 is the Bank of England really moving forward?

It's the biggest question on the financial worlds lips...... Is Carney right to gamble the economy against the rate of unemployment or is it merely the first bold showing from the boss?

In the radical move, Carney announced that he would leave the super low interest rates at 0.5% until the unemployment fell below 7%, ( something that they feel won't happen until late 2016 and importantly after the next general election), but what does it really mean for the UK and the rest of the world?

Financially it's too early to say, markets dipped slightly as the announcement was made, nothing unusual there then, but they bounced back to the tune of nearly 1% in mid afternoon, with the pound worth more than at any time in the last two months, of course in a recession the markets need to be taken daily, especially in terms of currency.

The move also means an increase in GDP forecasts from 1.2% and 1.9% for 2013/14 to around 1.5% and 2.7%, a sign of recovery but again it's early days.

The so called "forward guidance" is thought to be a move to give businesses and households alike confidence when trading but as always the other side of the sword may be a little sharper.

For those caught short at the end of the month however, purse strings could get tighter with the move leaving those wishing to borrow in something of a pickle.

And what of former glories and old regimes, there can be no doubt this is Carney's Bank but it is one he inherited from a loyal supporter, Lord King.

King is still active and forthright in his opinions and lest we forget that under his guidance the Bank resisted similar moves for fear of being counter productive both here and abroad.

One regime is wrong, it has to be, but only time will tell us which.

image: © World Economic Forum

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