Mark Carney plunges markets into confusion yet again over early rate talk
Traders were thrown into confusion as Governor Mark Carney issued an unexpectedly dovish signal about the likely timing of the first interest rate rise.
Speaking to the Treasury Select Committee, 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 spare capacity in the labour market than previously thought,” he said.
Those comments hit sterling, with the pound rapidly sliding half a cent against the dollar to $1.6977. The rate-setting MPC has said it will lift interest rates from their present historic lows of 0.5 per cent before slack has been fully used up.
At the Mansion House this month Carney caught traders off guard by saying interest rates could rise “sooner than markets currently expect”. That hawkish intervention prompted traders to drag forward their bets for the first rate rise to the autumn, having previously expected it to come in the first quarter of 2015.
Questioned by the committee about the wisdom of his Mansion House speech the Governor, pictured, said he “absolutely” expected it to move the markets. “Really 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 the data is healthy.” He added that expectations could move again if the data evolve to show more slack.
David Miles, an external member of the rate-setting monetary policy committee who was also giving evidence to the committee, concurred with 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 that the level of spare capacity in the economy could be higher than the 1 per cent to 1.5 per cent of GDP that is the MPC’s consensus estimate.
In another dovish signal on rates Carney suggested the level of unemployment the economy can bear before inflation starts to pick up could be lower than the Bank expected.
The Bank’s financial policy committee will reveal on Thursday whether or not it has decided to cool the housing market. House prices rose 9.9 per cent nationwide in the year to April, but in May mortgage approvals fell to their lowest since August, according to figures today from the British Bankers’ Association.
- 1 Half of young women unable to ‘locate vagina’ and 65% find it difficult to say the word
- 2 Emma Watson on Jennifer Lawrence naked photo leak: 'Even worse than seeing women's privacy violated is reading the comments'
- 3 Saudis risk new Muslim division with proposal to move Mohamed’s tomb
- 4 A teacher speaks out: 'I'm effectively being forced out of a career that I wanted to love'
- 5 Mexican woman becomes world’s 'oldest person' at 127
Perez Hilton apologises for publishing Jennifer Lawrence naked 4Chan photos
Jennifer Lawrence 'nude photo hacker' claims there are hundreds more celebrity images to come
Victoria Justice on naked photo leak: 'Let me nip this in the bud right now – pun intended'
Ariana Grande nude photos leak: Pictures are completely fake, say representatives
Saudis risk new Muslim division with proposal to move Mohamed’s tomb
Rotherham child sex abuse scandal: Labour Home Office to be probed over what Tony Blair's government knew - and when
What do immigrants really think of Britain? Polish immigrant's Reddit post goes viral
Ashya King: Parents of five-year-old boy refused permission to visit him in hospital and denied bail at Spanish court
With Douglas Carswell joining Ukip, my party has taken another giant step forward
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
Ashya King: 'Cruel NHS has not given us the treatment we need', says father of five-year-old with brain tumour who fled to Spain
iJobs Money & Business
£35000 - £38000 per annum + benefits: Ashdown Group: Executive Assistant/Event...
£30000 - £32000 per annum: Ashdown Group: HR Generalist (standalone) - Tunbrid...
£600 - £800 per day: Harrington Starr: Derivatives Risk Commodities Business A...
£600 - £800 per day: Harrington Starr: Power & Gas Business Analyst/Subject Ma...