The UK economy continues to accelerate, with growth of 1.6% expected this year and a further increased to 2.7% anticipated in 2014. Moreover, if unemployment continues to fall as quickly as it has in recent months, the Bank of England could breach its 7.0% target much sooner than initially expected. The sharp turnaround in many economic indicators over the last few months has illustrated the difficulties with forward guidance as a form of monetary policy.It hasn’t failed, but given that, when it was introduced last August, unemployment was expected to hit 7.0% around 2016, it arguably hasn’t provided much guidance or certainty.
The question is, what alternative tools are available to economic policymakers in the UK?
In his latest Gresham lecture, Professor Douglas McWilliams, Executive Chairman and Founder of Cebr, suggested that a nominal GDP target would be a suitable prescription.