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Bank of England governor Mark Carney defends leaving interest rates on hold again - as it happened Bank of England governor Mark Carney defends leaving interest rates on hold again - as it happened
(7 months later)
Here’s our economics editor Larry Elliott on today’s news from the Bank of England.Here’s our economics editor Larry Elliott on today’s news from the Bank of England.
The Bank of England has put back plans for an increase in interest rates after the weaker-than-expected performance of the economy in early 2018.The Bank of England has put back plans for an increase in interest rates after the weaker-than-expected performance of the economy in early 2018.
Although the Bank believes the soft patch in growth will prove temporary, seven of the nine members of its monetary policy committee adopted a wait-and-see approach to raising official borrowing costs and voted to keep them at 0.5%.Although the Bank believes the soft patch in growth will prove temporary, seven of the nine members of its monetary policy committee adopted a wait-and-see approach to raising official borrowing costs and voted to keep them at 0.5%.
Two members of the committee – Michael Saunders and Ian McCafferty – said rising pay caused by falling unemployment required an immediate increase in interest rates.Two members of the committee – Michael Saunders and Ian McCafferty – said rising pay caused by falling unemployment required an immediate increase in interest rates.
The Bank’s decision – which was outlined in its quarterly inflation report – will come as no surprise to the City, which expected Threadneedle Street to ditch plans for tighter policy this month in the light of first quarter growth of 0.1%, a faster-than-expected fall in inflation and evidence that consumers were cutting back on spending.The Bank’s decision – which was outlined in its quarterly inflation report – will come as no surprise to the City, which expected Threadneedle Street to ditch plans for tighter policy this month in the light of first quarter growth of 0.1%, a faster-than-expected fall in inflation and evidence that consumers were cutting back on spending.
The minutes of this week’s monetary policy committee meeting show that rate rises are still being planned in order to meet the government’s 2% inflation target, but the language was notably softer than in February when the Bank said policy would probably need to be tightened earlier and to a greater extent than the markets were expecting.The minutes of this week’s monetary policy committee meeting show that rate rises are still being planned in order to meet the government’s 2% inflation target, but the language was notably softer than in February when the Bank said policy would probably need to be tightened earlier and to a greater extent than the markets were expecting.
Three months ago, the Bank had been pencilling in growth of 0.4% in the first quarter and 1.8% for 2018 as a whole. The near-stalling of the economy has led the MPC to cut its annual growth forecast to 1.4% for this year....Three months ago, the Bank had been pencilling in growth of 0.4% in the first quarter and 1.8% for 2018 as a whole. The near-stalling of the economy has led the MPC to cut its annual growth forecast to 1.4% for this year....
Bank of England holds UK interest rates at 0.5%
That’s probably all for today; thanks for reading and commenting. GWThat’s probably all for today; thanks for reading and commenting. GW
Ben Brettell, senior economist at Hargreaves Lansdown, believes UK interest rates may not rise until 2019!Ben Brettell, senior economist at Hargreaves Lansdown, believes UK interest rates may not rise until 2019!
He blames the return of the ‘unreliable boyfriend’ today:He blames the return of the ‘unreliable boyfriend’ today:
Not for the first time, Mark Carney’s policy of guiding the markets as to what to expect has backfired. A month or so ago it looked like a May rate rise was a near-certainty. The Bank of England had upgraded its growth forecasts and in March two members of the MPC broke ranks and voted for an immediate rate rise.Not for the first time, Mark Carney’s policy of guiding the markets as to what to expect has backfired. A month or so ago it looked like a May rate rise was a near-certainty. The Bank of England had upgraded its growth forecasts and in March two members of the MPC broke ranks and voted for an immediate rate rise.
Markets were then pricing in a 90% chance of a rate rise at this month’s policy meeting.Markets were then pricing in a 90% chance of a rate rise at this month’s policy meeting.
But since then things have changed. First-quarter economic growth was a disappointing 0.1%, and the ONS said the bad weather wasn’t to blame. Add in an (un)healthy dose of Brexit uncertainty, and the chance of a rate hike had dwindled to just 8% at the start of this week.But since then things have changed. First-quarter economic growth was a disappointing 0.1%, and the ONS said the bad weather wasn’t to blame. Add in an (un)healthy dose of Brexit uncertainty, and the chance of a rate hike had dwindled to just 8% at the start of this week.
As such today’s no change decision wasn’t a surprise, and barely caused a ripple in the marketsAs such today’s no change decision wasn’t a surprise, and barely caused a ripple in the markets
Ranko Berich, head of market analysis at Monex Europe, says Mark Carney has once again disappointed those hoping for an interest rate rise - and the pound is paying the price:Ranko Berich, head of market analysis at Monex Europe, says Mark Carney has once again disappointed those hoping for an interest rate rise - and the pound is paying the price:
“Once again, Mark Carney and the MPC have backed away from hiking interest rates mere months after hinting that a move was imminent. The MPC holding fire on hikes is not an issue in itself – the committee is data dependent, and recent UK data has been poor – but the dangers of making overly explicit statements on future policy moves have been made clear.“Once again, Mark Carney and the MPC have backed away from hiking interest rates mere months after hinting that a move was imminent. The MPC holding fire on hikes is not an issue in itself – the committee is data dependent, and recent UK data has been poor – but the dangers of making overly explicit statements on future policy moves have been made clear.
Carney’s warnings from February about rates rising earlier and to a greater extent now once again look like the promises of an unreliable boyfriend – and sterling is again suffering from being jilted at the rate hike altar.Carney’s warnings from February about rates rising earlier and to a greater extent now once again look like the promises of an unreliable boyfriend – and sterling is again suffering from being jilted at the rate hike altar.
Craig Inches, Head of Rates & Cash at Royal London Asset Management, thinks the Bank of England has fumbled the opportunity to raise interest rates today.Craig Inches, Head of Rates & Cash at Royal London Asset Management, thinks the Bank of England has fumbled the opportunity to raise interest rates today.
“In our view, the Bank has missed another opportunity to raise rates. Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank’s newly lowered forecasts, suggest.”“In our view, the Bank has missed another opportunity to raise rates. Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank’s newly lowered forecasts, suggest.”
“Interestingly two members of the MPC also agree with us, while the press conference by Mark Carney and colleagues was in fact more hawkish than the headlines suggest.“Interestingly two members of the MPC also agree with us, while the press conference by Mark Carney and colleagues was in fact more hawkish than the headlines suggest.
Newsflash: Sterling is now at a four-month low against the US dollar:Newsflash: Sterling is now at a four-month low against the US dollar:
and it's gone - GBPUSD hits a 4 month low: pic.twitter.com/5QvZp4qgQYand it's gone - GBPUSD hits a 4 month low: pic.twitter.com/5QvZp4qgQY
Peter Dixon of German bank Commerzbank believes the Bank of England sounded rather more dovish about interest rate policy today.Peter Dixon of German bank Commerzbank believes the Bank of England sounded rather more dovish about interest rate policy today.
He writes:He writes:
The forecast is conditioned on three rate hikes of 25 bps over the next three years and markets have slashed the probability assigned to a rate move in 2018.The forecast is conditioned on three rate hikes of 25 bps over the next three years and markets have slashed the probability assigned to a rate move in 2018.
That’s why the pound has fallen against the US dollar today; currently down 0.5% at $1.348.That’s why the pound has fallen against the US dollar today; currently down 0.5% at $1.348.
Anthony Gillham of wealth manager Quilter thinks the media’s questions about Mark Carney’s unreliability hit a nerve today:Anthony Gillham of wealth manager Quilter thinks the media’s questions about Mark Carney’s unreliability hit a nerve today:
“Carney’s snap at the ‘unreliable boyfriend’ tag reveals the tension between the City clamour over interest rate changes and the real impact on households. Unsurprisingly, the Bank is probably feeling a little defensive that its own ‘forward guidance’ seems to have misled the City.“Carney’s snap at the ‘unreliable boyfriend’ tag reveals the tension between the City clamour over interest rate changes and the real impact on households. Unsurprisingly, the Bank is probably feeling a little defensive that its own ‘forward guidance’ seems to have misled the City.
As a result he was keen to distinguish between the City and his other key stakeholder, UK households. He is right to do so, but the truth is that they’re inextricably linked.As a result he was keen to distinguish between the City and his other key stakeholder, UK households. He is right to do so, but the truth is that they’re inextricably linked.
The market expected a rise largely because it predicted the economy would be carrying more momentum and inflation would be running higher. Those predictions have proved overly optimistic, which is definitely a concern for households, and that is why rates are staying flat today.The market expected a rise largely because it predicted the economy would be carrying more momentum and inflation would be running higher. Those predictions have proved overly optimistic, which is definitely a concern for households, and that is why rates are staying flat today.
Professor Costas Milas of the University of Liverpool thinks that Brexit uncertainty is helping to push Britain’s next interest rate rise further and further into the future.Professor Costas Milas of the University of Liverpool thinks that Brexit uncertainty is helping to push Britain’s next interest rate rise further and further into the future.
He’s plotted the Bank of England’s GDP growth forecasts alongside economic policy uncertainty (based on the number of articles about economic worries in The Times and the FT).He’s plotted the Bank of England’s GDP growth forecasts alongside economic policy uncertainty (based on the number of articles about economic worries in The Times and the FT).
It shows a “clear negative correlation”, he says (sagging growth and media angst about the economy go hand in hand).It shows a “clear negative correlation”, he says (sagging growth and media angst about the economy go hand in hand).
Professor Milas adds:Professor Milas adds:
Notice, also, that - unfortunately - current uncertainty has started picking up again. If this persists, August’s Inflation Report will trim further the growth forecast which will of course delay even further a possible hike.Notice, also, that - unfortunately - current uncertainty has started picking up again. If this persists, August’s Inflation Report will trim further the growth forecast which will of course delay even further a possible hike.
Nice snap summary from Bloomberg’s Jill Ward:Nice snap summary from Bloomberg’s Jill Ward:
Mark Carney says the @bankofengland still intends to deliver “modest” tightening after an unexpected economic slowdown derailed an interest-rate hike that investors had anticipated as soon as this month https://t.co/YPXxLxmKGh via @economicsMark Carney says the @bankofengland still intends to deliver “modest” tightening after an unexpected economic slowdown derailed an interest-rate hike that investors had anticipated as soon as this month https://t.co/YPXxLxmKGh via @economics
After years of playing the ‘unreliable boyfriend’, Mark Carney is turning into the tetchy husband who keeps promising to take the bins out, but never quite gets round to it.After years of playing the ‘unreliable boyfriend’, Mark Carney is turning into the tetchy husband who keeps promising to take the bins out, but never quite gets round to it.
Today’s excuse for not raising interest rates is that the UK economy has slowed in recent months, as the Beast From The East hit construction activity and kept shoppers off the high street. A fair point.Today’s excuse for not raising interest rates is that the UK economy has slowed in recent months, as the Beast From The East hit construction activity and kept shoppers off the high street. A fair point.
In the same breath, Carney sounds confident that the economy will rebound in the months ahead - even though the Bank has cut its 2018 growth forecast from a moderate 1.8% to a modest 1.4%.In the same breath, Carney sounds confident that the economy will rebound in the months ahead - even though the Bank has cut its 2018 growth forecast from a moderate 1.8% to a modest 1.4%.
Faced with repeated questioning about his failure to raise borrowing costs, the governor declared:Faced with repeated questioning about his failure to raise borrowing costs, the governor declared:
What’s the sensible thing to do? Do you act now or do you wait to see evidence that that momentum is re-asserting?What’s the sensible thing to do? Do you act now or do you wait to see evidence that that momentum is re-asserting?
“The judgement of the majority of the committee is you wait to see for some evidence of that reasserting.”“The judgement of the majority of the committee is you wait to see for some evidence of that reasserting.”
So, we can all expect the bins to finally be dragged out at the Bank’s next meeting, in June? Or perhaps August (when the BoE will hold its next ‘Super Thursday’ press conference)?....So, we can all expect the bins to finally be dragged out at the Bank’s next meeting, in June? Or perhaps August (when the BoE will hold its next ‘Super Thursday’ press conference)?....
Not necessarily. Mark Carney is refusing to make any sweeping commitments. He even argues that the British public isn’t too fixated on the timing of rate rises, and understands they’ll happen at the appropriate time.Not necessarily. Mark Carney is refusing to make any sweeping commitments. He even argues that the British public isn’t too fixated on the timing of rate rises, and understands they’ll happen at the appropriate time.
He said:He said:
The expectations of those individuals - more than three-quarters of those, whether they’re individuals or businesses - is that interest rates are going to go up, are likely to go up at some point over the course of the next years,probably a couple of times over the next year, year and a half.”The expectations of those individuals - more than three-quarters of those, whether they’re individuals or businesses - is that interest rates are going to go up, are likely to go up at some point over the course of the next years,probably a couple of times over the next year, year and a half.”
“So they are in a position that they can plan accordingly for that possibility, they don’t think it’s a guarantee, they think it’s a likelihood.”“So they are in a position that they can plan accordingly for that possibility, they don’t think it’s a guarantee, they think it’s a likelihood.”
Andrew Sentance, a former member of the MPC, isn’t impressed:Andrew Sentance, a former member of the MPC, isn’t impressed:
The Monetary Policy Committee has been replaced by the Manyana Policy Committee. Interest rates are always going to rise tomorrow, never today.The Monetary Policy Committee has been replaced by the Manyana Policy Committee. Interest rates are always going to rise tomorrow, never today.
The #MPC appears to have totally misunderstood recent disappointing UK economic performance. Monetary policy uncertainty and persistent low interest rates are having a negative impact on growth, not least by undermining sterling which squeezes consumers through higher inflation.The #MPC appears to have totally misunderstood recent disappointing UK economic performance. Monetary policy uncertainty and persistent low interest rates are having a negative impact on growth, not least by undermining sterling which squeezes consumers through higher inflation.
Carney could, rightly, point out that the Bank should hold off raising interest rates until we have more clarity on the UK’s future trading relationship with the EU. But that might be too political for the governor,Carney could, rightly, point out that the Bank should hold off raising interest rates until we have more clarity on the UK’s future trading relationship with the EU. But that might be too political for the governor,
Instead, he cautioned:Instead, he cautioned:
While the storms of February and March have given way to sunnier skies, the economic outlook for the UK remains clouded by Brexit uncertainties.While the storms of February and March have given way to sunnier skies, the economic outlook for the UK remains clouded by Brexit uncertainties.
Despite the welcome agreement on a transition period, the terms on which the UK will trade with the EU beyond that period remain to be determined.”Despite the welcome agreement on a transition period, the terms on which the UK will trade with the EU beyond that period remain to be determined.”
Mark Carney also tried to rise above the fray, arguing that families aren’t busy trading the ‘short-sterling’ rates in an attempt to predict interest rate moves. True, but those financial instruments still really matter (as Carney understands all too well, of course).Mark Carney also tried to rise above the fray, arguing that families aren’t busy trading the ‘short-sterling’ rates in an attempt to predict interest rate moves. True, but those financial instruments still really matter (as Carney understands all too well, of course).
Carney: Households don't trade short-sterling. Quite right, but some have mortgages tied to Bank Rate. It's still important.Carney: Households don't trade short-sterling. Quite right, but some have mortgages tied to Bank Rate. It's still important.
So when might UK interest rates actually go up? Yael Selfin, Chief Economist at KPMG in the UK, thinks it might not happen until November - which would be a year after the last hike.So when might UK interest rates actually go up? Yael Selfin, Chief Economist at KPMG in the UK, thinks it might not happen until November - which would be a year after the last hike.
She writes:She writes:
“Faced with weaker economic data in the first quarter of 2018, the Bank of England’s Monetary Policy Committee decided to opt for caution and to leave interest rates unchanged at 0.5% today. While the decision had been largely anticipated, it marks a significant shift from expectations only a few weeks ago for a rate rise in May.“Faced with weaker economic data in the first quarter of 2018, the Bank of England’s Monetary Policy Committee decided to opt for caution and to leave interest rates unchanged at 0.5% today. While the decision had been largely anticipated, it marks a significant shift from expectations only a few weeks ago for a rate rise in May.
“The strong labour market, together with a range of business surveys as well as what we see on the ground talking to our clients, do not point to a material shift in the economic environment, and support the view that the weakness at the start of the year is likely to be at least partially reversed further on this year.“The strong labour market, together with a range of business surveys as well as what we see on the ground talking to our clients, do not point to a material shift in the economic environment, and support the view that the weakness at the start of the year is likely to be at least partially reversed further on this year.
“While on paper there are a number of opportunities for the MPC to raise rates this year, the next rise may now only take place in November. It is likely to coincide with a new Inflation Report and the MPC may wish to avoid a rate rise in August when markets are thinner and businesses and households could be caught off-guard while on holiday. That would make a relatively long delay in policy action due to a potential short blip in data.”“While on paper there are a number of opportunities for the MPC to raise rates this year, the next rise may now only take place in November. It is likely to coincide with a new Inflation Report and the MPC may wish to avoid a rate rise in August when markets are thinner and businesses and households could be caught off-guard while on holiday. That would make a relatively long delay in policy action due to a potential short blip in data.”
Oh, and what about *that* nickname? Well, governor Carney looked rather tired of being labeled an unreliable suitor (a moniker that dates back to 2014). He told the press:Oh, and what about *that* nickname? Well, governor Carney looked rather tired of being labeled an unreliable suitor (a moniker that dates back to 2014). He told the press:
The only people who throw that term at me are in this room.The only people who throw that term at me are in this room.
So now everyone else can throw it at me when I go out of this room.”So now everyone else can throw it at me when I go out of this room.”