Threadneedle Street said it would not even start to muse about an increase in interest rates until the jobless rate hit 7%. According to the Bank, this was likely to be in early 2016.
Happily, the Old Lady's forecasts have proved spectacularly wrong. The recovery in the economy since the spring has proved to be jobs rich, with the latest report from the Office for National Statistics (ONS) showing that employment was up by 250,000 in the three months to October. Unemployment fell by almost 100,000 over the same period and the average jobless rate for the three months from August to October dropped to 7.4%.
For October alone, the unemployment rate using experimental ONS data hit 7%, making it highly probable that the Bank's threshold for discussing an increase in the cost of borrowing will be hit early next year.
The Bank's governor, Mark Carney, had the perfect opportunity to comment on this good news when he appeared in public to announce the move to plastic banknotes. So did Carney say he was pleased that more people were finding work? He did not. Did he joke that unemployment was on course to hit the 7% mark before the new polymer notes are introduced in 2016? He did not.
In fact, the governor declined to answer questions about unemployment at all. He was there to talk about banknotes and that was it.
The reticence on the part of the governor is not perhaps as surprising as it seems. Getting economic forecasts wrong is becoming an embarrassing habit for the Bank. It failed to spot that Britain was in recession in 2008, was taken unawares by the flatlining of 2011 and 2012, and has now underestimated the strength of the pick-up.
Using unemployment as the basis for forward guidance on interest rates was always going to be problematic. The jobless rate does not move in the smooth, linear way assumed by the Bank: it tends to move up and down quickly depending on the state of the economy. Clearly, the economy now has a real head of steam behind it: it is unlikely but not totally out of the question that unemployment could hit 7% by the end of 2013.
For the time being, the still depressed state of earnings will enable the Bank to hold the line on interest rates. Carney, when he is in a more talkative mood, has said it is by no means a done deal that bank rate will be raised from its record low of 0.5% even when the 7% threshold is reached. And with earnings rising at an annual rate of 1% while inflation is running at 2%, the monetary policy committee can fend off pressure for dearer borrowing.
But this pressure will intensify over the coming months. Why? Because the rapid tightening of the labour market increases the competition for workers and makes it highly likely that pay settlements will rise during 2014. Because there are signs that five years of ultra-low interest rates risk creating a boom-bust in the housing market. And because, quite sensibly, nobody has any faith in the Bank's forecasts.
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