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.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
Fans hold up a scarf at West Ham vs Liverpool
footballAfter Arsenal's clear victory, focus turns to West Ham vs Liverpool
New Articles
i100... she's just started school
ebooksAn unforgettable anthology of contemporary reportage
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
New Articles
i100... despite rising prices
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

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam