Bank governor makes his case on interest rates
20 June 2017 Business News
Mark Carney has outlined his opposition to a rise in interest rates as pressure for an increase builds at the Bank of England.
The Bank’s governor told a City audience “now is not yet the time” to raise borrowing costs to combat Brexit-linked inflationary pressures.
His main concern was the potential impact on business sentiment and consumers, as wage growth lags the pace of price increases – driven up by higher import costs since the collapse in sterling’s value after the referendum.
He made the remarks in his Mansion House speech – postponed last week because of the Grenfell Tower fire – just days after three members of the Bank’s monetary policy committee (MPC) backed an interest rate rise.
The MPC had cut Bank rate to a record low 0.25% in August last year to combat the threat of a slowdown after the Brexit result.
External members Ian McCafferty, Michael Saunders and the outgoing Kristin Forbes supported a rise to 0.5% after the rate of inflation hit 2.9% in May – its in almost four years. The Bank’s target rate is 2%.
It marked the closest vote for a rate rise in a decade.
Mr Carney said on Tuesday: “Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank rate increase.
“From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin
He added hopes that the uncertainty would soon lift to reveal “the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption”.
The pound, which had rallied against the dollar after the split interest rate decision, fell back to a one-week low in the wake of the governor’s remarks to $1.2671. It also fell back against the euro.
Neil Wilson, senior market analyst at ETX Capital, said Mr Carney had “laid on a thick layer of dovishness”.
He added: “Quite why anyone was surprised is unclear but the market reacted.
“Cable fell through the $1.27 handle to touch on $1.267 with investors seeing the tone as indicative of the Bank’s desire to leave rates on hold for as long as it can.
“The FTSE 100 jumped at the same time, rallying around 30 points as heavyweight dollar earners like HSBC and Shell turned higher.”