Forward guidance is a good tool only if the central bank can forecast the economy accurately

Forward guidance must be solidly supported by the central bank. The credibility of the central bank is the most important part of making the policy of forward guidance effective. The Bank of England steps into the mud of forward guidance. The Bank of England's forecast of the labour market was inaccurate. The Bank of England has to decide whether it will follow its initial forward guidance or amend the forward guidance in order to deal with the current economic problems. If the central bank decides to follow its initial forward guidance, the current economic problems would not be dealt effectively. However, if the central bank decides to amend its mandate, the central bank would become less credible and the future policy would become less effective. Overall, forward guidance is a good tool, but the central bank has to make a very accurate forecast.