If there is one message that a wider public audience takes away from my remarks this morning, I hope it is that. Returning inflation to its 2% target is at the heart of the MPC’s actions over the past 10 months. Ceasing asset purchases; starting to raise Bank Rate; beginning to shrink the asset portfolio; considering starting to sell gilts acquired via QE: all these actions serve to tighten monetary conditions and weigh against inflationary pressures. Of course, there is always the question of whether these actions should have come earlier or been more aggressive. In assessing these claims, we need to be wary of hindsight bias, and recognise the benefits of adopting a measured, determined and purposeful approach to the transition from the very accommodative policies introduced during the global financial crisis and maintained more or less ever since. But now that the initial stage of that transition have been successfully navigated, an immediate issue for monetary policy makers is whether the pace of policy tightening now needs to change. In May, inflation reached 9.1%. [4] The MPC forecasts a further rise to around 11% later in the year, once rises in international commodity prices stemming from Russia’s invasion of Ukraine pass through to UK utility and food prices. For an MPC member charged with achieving the inflation target of 2% – someone in ‘the price stability business’, if you like – this is obviously a very unsatisfactory situation.
As a result, the case for maintaining forward guidance to smooth the transition is, at least in my view, much diminished. On this basis, the ‘further tightening’ forward guidance that had been in place in MPC statements since November – despite its evolution over the intervening period – had come to outlive its usefulness. Speaking from the collective perspective of the MPC, using forward guidance of that form requires near-unanimity across members of the Committee if it is to be meaningful. But, as the patterns of individual votes on Bank Rate in recent months reveals, unanimity about the short-term interest rate outlook no longer exists. We should not be defensive about that. One of the strengths of the MPC set-up is individual accountability and the diversity of view that it encourages. At a time when inflation is elevated, monetary policy faces substantial challenges, and uncertainty is heightened by geopolitical and epidemiological concerns, it would be not only surprising but also worrying if all MPC members moved in lockstep. For all the commentary about ‘group think’ on the Committee, I see little evidence of that in our discussions or published votes. But trying to shoehorn that necessary and constructive diversity of opinion into a common statement[15] is understandably – and probably inevitably – confusing. It certainly is hard to encompass the prevailing diversity of opinion into a short and clear statement of forward guidance. And if, in that context, attempts at guidance create confusion rather than clarity, then surely the time has come to retire them.