Mark Carney, who will become Governor of the Bank of England (BoE) on July 1st, might introduce explicit forward policy guidance in August, an expert said on Wednesday.
Simon Wells, Chief British Economist of HSBC said on Wednesday that, besides that, BoE would add more stimulus measures if the economy recovering is stalling.
In the new research paper released Wednesday, Wells said that Carney arrives as many economic indicators are improving, but challenges such as weak demand still exist.
"Although we expect growth to pick up, underlying demand still seems too weak to justify the optimism signaled by recent surveys. Wage growth is very slow, which limits household spending power, and with the global economy not looking as strong as it did a few months ago, trade could continue to disappoint. Despite the stronger indicators, we stick with our 2013 growth forecast of 0.8 percent," said Wells.
Wells said the HSBC expects the new governor of BoE to introduce explicit forward policy guidance in August, but stresses that getting the Monetary Policy Committee (MPC) to agree on thresholds for guidance will not be straightforward, since the majority of MPC members already consider the current policy stance to be appropriate.
Forward guidance will probably state that the MPC will not consider any policy tightening until one or more economic variables have reached pre-set thresholds.
Wells said that "the choice of variables and thresholds is far from obvious, but we think a nominal GDP growth rate is most likely. "
"If the recovery stalls and further policy easing is required, we think unlimited gilt (British government bonds) purchases would not be the MPC's first choice. Worries about exit, increasing financial market dependence on cheap money and a waning impact all point to using more direct measures to improve credit supply," he added.