First, let's remind ourselves of the case for doing so. If the Bank can credibly tell markets that Bank rate will stay lower than traders believe, then interest rate expectations will fall. This should in turn reduce longer-term borrowing costs, because these are a function of expected short term interest rates. And this in turn should encourage firms to borrow more and invest more.
There are, however, plenty of problems here.
First, can the Bank credibly affect interest rate expectations? Danny Gabay at Fathom Consulting points out that it can only do so if it knows more about the future of the economy than the markets do. But this is far from obvious.
Secondly, even if the Bank can do this, it won't reduce interest rate expectations very much, simply because these are already low; short sterling futures are pricing in a rate of only 1.2 per cent by as late as 2015. Corporate borrowing costs won’t therefore fall very much. For this reason, says Bristol University's Tony Yates, "it might take a commitment to a very long period of flat rates to make any appreciable difference to real activity and inflation."
Worse still, investment is not very sensitive to lower interest rates. We know this because companies have recently been stock-piling cash despite ultra-low rates, and because they are telling us so. The latest CBI survey found that only five per cent of manufacturers say their investment plans are curtailed by the cost of finance, compared to 55 per cent citing uncertainty about demand.
In this context, guidance might actually backfire. Telling us that interest rates will stay low for a long time is equivalent to telling us the economy will stay weak for a long time. This could (further) deter firms from investing. The dilemma raised by Andrew Caplin and John Leahy in an unjustly neglected paper - that small monetary policy measures can backfire because of their signalling effect - is acute.
Now, there might be a way around these objections. It's for the Bank to announce "intermediate thresholds". Rather than simply promise to keep rates low, it pledges to do so until a particular threshold is reached - such as a particular level of unemployment.
Here, however, we have - broadly speaking - two possibilities.
One is that the unemployment threshold is accompanied by an inflation threshold. This is what the Fed does when it says rates will stay low "at least as long as the unemployment rate remains above 6-1/2 per cent [and] inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 per cent longer-run goal."
But a statement along these lines won't make much difference. We already know the Bank won't raise rates unless inflation looks like rising.
The other possibility is that we just have a threshold for real activity or unemployment, without reference to inflation. But this poses the problem that the link between unemployment and inflation is unstable. It can change with changes in productivity, labour force participation, inflation expectations or (in the short run) exchange rates. Guidance of this type, says Nick Bate of Bank of America Merrill Lynch might therefore simply amount to describing the conditions in which the Bank will ignore above-target inflation. And this raises the question: what's the point of the target?
I'm therefore tempted to agree with Adam Posen. Guidance, he's said, is a "gimmick" which "does not have the large effects that Mr Carney and others seem to think is the case."
So, assuming we want to stimulate the economy, what options are available? We could raise the inflation target or adopt an aggressive nominal GDP target (though I'm sceptical of these too). Or we could recognise that there's just not much that monetary policy can do at the zero bound, and thus use fiscal policy instead. All of these options, however, are ones for the Chancellor, not the Bank - and he has rejected them.
