Britain’s recovery lies down a tough road

The worry about the Bank of England’s new policy of forward guidance is not so much that the market doesn’t appear to believe it, though that can’t help, as the extent to which the whole plan depends on house price gains.

The Bank of England has enunciated a new policy of providing the market with forward guidance, saying it was unlikely to raise interest rates above their current all-time low of 0.5% as long as unemployment, now 7.8%, is higher than 7%.

Forward guidance, introduced by new Bank of England chief Mark Carney, is intended to drive down longer-term rates and thus goose asset prices. It includes get-out clauses that would allow for a hike.