CityUK's Independent Economists Group Warns Of Uncertainty Over Macroprudential Policy

TheCityUK's Independent Economists Group (IEG) has warned in a new report that uncertainty over the use of macroprudential measures and the timing of interest rate rises pose risks to the UK economy. According to the IEG, while macroprudential tools offer significant potential, policymakers must exercise caution in implementing measures which could undermine the financial stability they are designed to ensure. At the same time, interest rate rises must be controlled to ensure they do not result in imbalances which threaten the economic recovery.

In the new report, The role of macroprudential policy in the policy framework, the IEG considers the potential of new macroprudential tools available to policymakers and regulators to promote stability in the financial system by managing risks from linkages in the system. While it recognises that these policies have real potential, particularly when it comes to managing asset bubbles and controlling systemic risk, the IEG also warns that how these measures will work in practice is still largely unknown. The report uncovers a number of areas of uncertainty around the implementation of macroprudential measures. This policy uncertainty creates certain risks, so it is vital that policymakers consider the likely impact their implementation will have.

The new IEG report also looks at the potential timing of a rise in UK interest rates, and the likelihood of a rise this calendar year. There were divided views on the desirability of a rate rise before the end of 2014, and on the likelihood of the first rate rise before the upcoming general election - though the weight of opinion was against a near-term rise.