Mark Carney: Bank of England Governor sweeps prospect of interest rate rise off the table

Mr Carney suggested in July that a decision on the next rate rise would 'come into sharper relief around the turn of the year'

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The pound fell to its lowest level against the dollar in seven years after the Governor of the Bank of England, Mark Carney, swept any prospect of a rate rise in the near future comprehensively off the table.

“Now is not yet the time to raise interest rates,” Mr Carney said during a speech at Queen Mary University, citing the collapse in the oil price, volatility in the Chinese economy and a weakening of both GDP growth and wages in the UK.

The Governor had given a speech in Lincoln last July in which he suggested a decision on the next rate rise would “come into sharper relief around the turn of the year”, widely interpreted as signal of a possible hike from the Bank’s Monetary Policy Committee around now.

But Mr Carney said that events had played havoc with that timetable. “It is clear to me that since last summer progress has been insufficient… to warrant a tightening of monetary policy,” he said. “The world is weaker and UK growth has slowed.”

In the wake of his comments, sterling fell almost 2 cents to $1.4135, its lowest level against the greenback since March 2009. And traders pushed their expectations for the next Bank Rate rise all the way back to September 2017, a month later than expected. At the end of last year markets had been pricing in a rate increase in the middle of this year, reflecting how dramatically the mood has shifted of late.

The ructions in the currency markets came despite official consumer price inflation figures for December showing a strengthening of core consumer price inflation from 1.2 per cent to 1.4 per cent. The headline CPI rate rose to 0.2 per cent, from 0.1 per cent previously.

“His [Carney’s] assessment of the outlook is more bearish and disinflationary” Ross Walker of the Royal Bank of Scotland said. “Whilst we would normally hesitate to change a Bank Rate forecast in response to a single speech this time is different: the Governor’s assessment of the risks now points in the same direction as our own and the financial markets’.”

Last week the nine member Monetary Policy Committee voted by 8 to 1 to keep rates on hold at a record low of 0.5 per cent, with only Ian McCafferty voting for an immediate 0.25 percentage point increase. 

Mr Carney’s comments were very much in line with those expressed by Gertjan Vlieghe, the newest member of the MPC on Monday, who said he was “patient” about raising rates.

Despite the December uptick in the CPI the latest official release from the Office for National Statistics confirmed the index averaged zero percent growth over 2015 as a whole, the weakest performance since records began in 1950.

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