Mark Carney behaving like 'unreliable boyfriend' over interest rate rises
Bank of England Governor accused by member of Treasury Select Committee
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.
- 1 Games of Thrones actor Lena Headey makes emotional promise to her unborn daughter
- 2 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 3 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
- 4 Female Muay Thai champion hustles coaches to give them a beating
- 5 Picture of couple posing with beached dolphin 'that later died' causes outrage
Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
Purity balls: Girls in the US making virginity pledges as fathers vow to 'protect purity'
Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
Female Muay Thai champion hustles coaches to give them a beating
16-year-old girl beaten and burned alive by lynch mob in Rio Bravo, Guatemala
As a white man, I'm surprised more women aren't tweeting the hashtag #KillAllWhiteMen
Scotland may have to leave the EU even if it votes to stay in, David Cameron confirms
Report finds that Britain's wages are the most unequal in Europe
The day that Britain resigned as a global power
Almost a third of school pupils believe 'Muslims are taking over our country', study claims
Gay marriage 'Bert and Ernie' cake bakery found guilty of discrimination in Northern Ireland
iJobs Money & Business
£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...
£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...
£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...
£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...