UK interest rates dilemma in 'corridor of uncertainty', says chief economist

http://www.theguardian.com/business/2014/jun/18/bank-of-england-interest-rates-dilemma

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Andrew Haldane, the Bank of England's new chief economist, is a man at ease with an extended metaphor. His speech in Scarborough borrowed a cricketing term – "the corridor of uncertainty", which refers to the difficulty a batsman faces in deciding whether to play a well-pitched delivery off the back or front foot – to describe the Bank's dilemma on interest rates.

Playing late allows more time to read the ball, or the economic data, but risks a hurried shot. Playing early allows a more gradual forward movement, but the danger is that the initial first movement is misjudged.

Yes, that's a neat summary: the Bank doesn't want to choke the recovery, but an emergency rate of 0.5% can't last forever when the economy is growing at an annualised rate of 4%. So, tell us, what's the best strategy when you're in the corridor of uncertainty? That is where Haldane abandoned his metaphor. Economic statistics – unlike cricket batting averages – lie, he explained. Call it an elegant way of saying "dunno".

Much the same could be said of Martin Weale's speech. By reputation, he's a front-foot player, or the MPC member most likely to vote first for a rate rise, but his speech in Belfast hardly reinforced the caricature. "Should wage growth fail to revive, that will, on its own, tip the scales further in favour of maintaining a strong monetary stimulus," he said.

So why did governor Mark Carney say last week that the first rise in rates could be sooner than the market thinks? Well, clearly it could, but that's just stating the obvious. We assumed something had happened on the MPC to shift the scales, to use Weale's word.

There was nothing in the minutes to suggest so. The May minutes said: "For some members the monetary policy decision was becoming more balanced." The June minutes said: "For some members, the policy decision had become more balanced in the past couple of months than earlier in the year." No difference there.

All that's really changed, it would seem, is that Bank officials are anxious to tell us what a difficult decision they face on timing. We knew that, though. All this clarifying is very confusing.