Forward guidance is already helping to anchor gilt yields

Much has already been made of the absence of a fall in interest rate expectations and short gilt yields in response to the “forward guidance” announced by the MPC yesterday. But this does not suggest that policy has been entirely ineffective. Gilt yields fell after July’s MPC meeting and minutes which suggested that guidance was on its way. In addition, guidance seems to have been successful in reducing the sensitivity of the gilt market to positive economic news, such as the strong CIPS activity surveys. So recent events have reassured us that gilt yields are likely to stay relatively low even if the economic recovery continues to strengthen.