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 Scottish referendum: So how about the English now being given a chance to split from England?
- 2 Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
- 3 Kim Kardashian 'naked pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
- 4 Matthew Miller: American sentenced to hard labour in North Korea 'wanted to be Snowden II'
- 5 Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
Stamford Hill council removes 'unacceptable' posters telling women which side of the road to walk down
Kim Kardashian 'naked pictures' leaked on 4chan weeks after Jennifer Lawrence 'The Fappening' scandal
Isis in Syria: 60,000 Kurds flee terror in new exodus
Iranian blogger found guilty of insulting Prophet Mohammad on Facebook sentenced to death
4Chan naked photos leak: Celebrity Twitter reactions to the mass breach of privacy
Scottish independence referendum: A nation divided against itself
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Scottish independence: David Cameron is becoming the 'George Bush of Britain'
Russia freezes Ukraine into submission: Kiev admits country doesn't have enough fuel for winter
Archbishop of Canterbury admits doubts about existence of God
Portuguese academic says British are 'filthy, violent and drunk'
iJobs Money & Business
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...
£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...