Mark Carney behaving like 'unreliable boyfriend' over interest rate rises

Bank of England Governor accused by member of Treasury Select Committee

EConomics Editor

The Bank of England was accused of behaving like an "unreliable boyfriend" to the financial markets yesterday, as its Governor, Mark Carney, sent an unexpectedly dovish signal about the likely timing of the first interest rate rise.

At the Mansion House earlier this month, Mr Carney caught the City off guard when he said interest rates could rise "sooner than markets presently expect". That prompted traders to drag forward their bets on the first rate rise to the autumn, having previously pencilled it in for the first quarter of 2015.

But giving evidence to the Treasury Select Committee yesterday, Mr Carney said the most-recent data showing average real wages contracted again in April implied to him that the economy had more slack. "That would suggest to me that there has been more space capacity in the labour market than previously thought," he said.

His comments hit sterling, which immediately slid half a cent against the dollar to $1.6977. The Monetary Policy Committee (MPC) has made it clear it will lift interest rates from their present historic lows of 0.5 per cent well before slack has been fully used up.

Eimear Daly, of Monex Europe, described the Governor's intervention as a "whipsaw" while Chris Williams of Wealth Horizon said: "These actions are all symbolic of the mixed messages and confusion being fed into the market."

A member of the Treasury Select Committee (TSC), Pat McFadden, suggested the Bank had been behaving like an "unreliable boyfriend", who was "one day hot, one day cold, and the people on the other side of the message are left not really knowing where they stand".

However, the Bank stressed that Mr Carney's comments yesterday were consistent with the analysis in both its inflation report in May and also his Mansion House speech.

Questioned by the parliamentary committee about the wisdom of the speech, the Governor insisted that he "absolutely" expected it to move the markets.

"What we're trying to do is see the markets adjust to the data – we were surprised that it hadn't [already]," he said. "A short-term market of expectations of Bank rate that moves around with that data is healthy."

But Allan Monks of JP Morgan said Mr Carney's comments in recent months had left the tone of the May inflation report on the interest rate outlook "very hard to understand".

David Miles, an external member of the Monetary Policy Committee, who was also giving evidence to the TSC, echoed the Governor's view on slack. He said there was likely to be some "hidden unemployment" among the large number of newly self-employed workers and added that the level of spare capacity in the economy could be higher than the 1 -1.5 per cent of GDP that is the Monetary Policy Committee's consensus estimate.

In another dovish signal on rates, Mr Carney reiterated the view that the level of unemployment the economy can bear before inflation starts to rise could be lower than the Bank previously expected.

"There has been evidence that the long-term unemployed have been finding work more rapidly, suggested that the medium-term equilibrium unemployment rate could be lower," he said.

Mortgage market: 'Losing heat'

Mortgage approvals in May fell to their lowest level since August, according to figures from the British Bankers' Association (BBA).

May saw 41,757 mortgage approvals for house purchase, down from the 41,934 in April. Net mortgage lending was £1.24bn, down from £1.26bn.

"The heat appears to be coming out of the housing market," said Richard Woolhouse, the BBA's chief economist. "These are the first mortgage-approval figures we have seen since the introduction of the mortgage market review, so it is significant they have fallen for the fourth month in a row."

The Bank of England's Financial Policy Committee will reveal tomorrow whether it has decided to take action to cool the housing market.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and to give free concert as part of the Global Poverty Project

Mary J Blige and to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...