Here is a prediction. Now the Federal Reserve has moved towards publishing explicit interest rate forecasts, the Bank of England will follow suit. Moreover, it will happen sometime after June 2013.

The reason for my prediction isn’t as simple as the fact that central banks are assiduous followers of fashion, even though they are. But that the more forward-thinking officials in the Bank believe in increasing transparency and have a rather less cynical view of the British public and media than the current governor, Sir Mervyn King.

As Robin pointed out in his post on Tuesday, the Bank of England’s current forecasts have some advantages. By forecasting growth and inflation on the basis of two assumptions for monetary policy (constant policy and market expectations of interest rates), the growth and inflation forecasts are consistent with the assumptions for monetary policy. If inflation is forecast to be lower than target at a two to three year policy horizon, the implication is clearly that monetary policy is likely to loosen and vice-versa.  Read more