The scale of forecast revisions in the November Inflation Report will reinforce market scepticism about “forward guidance”.

The MPC has slashed its mean forecast for the unemployment rate in the fourth quarter of 2014 assuming unchanged policy from 7.5% in August to 7.0%. This forecast, moreover, is already out-of-date – it assumed that unemployment would average 7.7% over July-September 2013, versus an outturn reported earlier today of 7.6%.

Based on constant policy, the cumulative probability of the jobless rate reaching 7.0% by the end of next year is judged to be 50%, up from just 23% in August. This probability, presumably, is now greater than 50%, incorporating today’s “surprise”.

The Report states that the downward revision to the unemployment forecast mainly reflects stronger economic growth – assumptions about productivity and labour force expansion are similar to August. The expectation here of a faster unemployment decline rests on greater optimism about near-term growth prospects coupled with a more downbeat view on productivity. The MPC expects the annual change in output per hour to recover from -0.4% in the second quarter to more than 1% by early 2014 but available data suggest that productivity slipped again in the third quarter – see earlier post.

The stronger growth and lower unemployment forecasts were balanced by a significant reduction in the inflation profile for the next 12 months. The two-year-ahead mean inflation projection based on unchanged policy, however, is higher than in August – 2.2% versus 2.1%.

“Forward guidance” was concocted by Governor Carney and Chancellor Osborne in early 2013 amid media hysteria about a “triple-dip” recession. Its introduction in August was spectacularly mistimed to coincide with the onset of an economic boomlet. Governor Carney conveyed a dovish impression at today’s press conference but did not push back against market interest rate expectations and left all policy options open – including a 2014 tightening. His flagship initiative has already run aground and is taking on water.