Mark Carney's second meeting as Governor of the Bank of England was probably a lot quieter than his first - it certainly was so from a markets point of view. Last month we saw a statement come alongside the bank's decision to hold rates at 0.5% and asset purchases at £375bn - a statement that warned of 'forward guidance' and a continuation of the loose monetary policy which has characterised the last few years. Sterling plunged as a result, with traders beginning to price in just how long rates here in the UK may stay low.
One month on and things have changed. Today sterling rallied in the aftermath of the Bank of England's latest decision to hold policy once again. Some members of the economic community had forecast that we may see an increase in asset purchases or a cut in rates today, to herald the beginning of a looser monetary policy regime. That was not forthcoming, but still the prospect of 'forward guidance' remains. Last month's statement made sure to emphasise that any indication about the direction of rates and guidance thereof, will take place at Wednesday's Quarterly Inflation Report. And it is there where our attention must now turn.
Typically these are meetings that allow the Bank to reassess its growth and inflation outlook for the UK economy, but this one shall be different. Obviously the fact that Carney is chairing it will be a first, but the decision as to what measure the Bank decides upon to measure how policy is progressing is of particular interest.
Do they go with a nominal GDP target? This combination of growth and inflation targeting has long been popular with those who favour a looser monetary policy outlook as it allows for both conventional and unconventional measures to be adopted in the quest for higher growth and a stable inflation outlook. Carney does not seem to be a fan of this and said as much when questioned, in a particularly patronising interview, with parliament's Treasury Select Committee in February.
The problem that I have banged on about in these columns more than any other is not inflation but the relationship between inflation and wages. I would hope that Mark Carney uses a measure of wage growth alongside the actual measure that will 'headline' the policy; unemployment.
The Federal Reserve has tied their forward guidance to unemployment by pledging not to raise rates in the US until unemployment reaches 6.5%; it currently sits at 7.6%. The average rate of unemployment in the UK over the past 20 years according to the International Labour Organisation has 6.7% - a full 1% below where we are now. How long will it take for us to get to 6.7%? Well, the Office of Budgetary Responsibility, the economic watchdog set up by Chancellor George Osborne, predicts that we won't reach 6.7% unemployment until 2017. Can rates really stay that low until then?
Economic data has improved of late in the UK, but the man on the street will not give two hoots about manufacturing production or house price stability if he is not receiving a sustainable pay packet at the end of a day's work. Unemployment will come lower as growth returns, of that I have no doubt, and rates, if 'forward guidance' is to be believed, will also take some of the pressure of working people.
Next week is a big week for the new Governor of the Bank of England, and the UK economy as a whole. Wednesday at 09.30 will see Carney take the stage, the pound take a dive and the nation will hold its breath. By the end of Carney's first Quarterly Inflation Report we should have a much better idea of what we can expect next.