Yahoo Finance Carney: We might not hike rates next month
Interest rates might not rise next month after all, Mark Carney has said, surprising investors who were almost certain of a hike to 0.75pc.
The Governor of the Bank of England said that rates are on the way up, but cautioned the precise timing is now in doubt.
The pound fell as markets reassessed the chance of higher rates, falling 0.75pc to €1.14 against the euro and to $1.41 versus the dollar.
He pointed to weaker retail sales figures – in part caused by the so-called Beast from the East cold snap – as one factor.
Mr Carney’s comments also come after a surprise fall in inflation, which dipped to 2.5pc in March. This takes it closer to the Bank’s 2pc target, reducing the pressure to raise rates.
“We have had some mixed data. On the softer side some of the business surveys have come off. Retail sales have been a bit softer – we are all aware of the squeeze that is going on in the high street,” he said in an interview in Washington DC.
He said there “will be some differences of view” at May’s Monetary Policy Committee meeting and that he is “conscious that there are other meetings over the course of this year".
Mr Carney was clear that he still expects rates to rise over time.
“Prepare for a few interest rate rises over the next few years,” the Governor said in an interview with the BBC.
“I don't want to get too focused on the precise timing, it is more about the general path.”
He added that the Brexit negotiations are far more important as “the biggest set of economic decisions over the course of the next few years”, while the Bank would adjust its policies to suit the outcome of those talks.
Last month two of the nine MPC members voted to raise interest rates.
Shifting the base rate to 0.75pc would represent an important break with the era following the financial crisis.
Interest rates were slashed to 0.5pc in 2009 and stayed there until 2016, when they were cut to 0.25pc after the Brexit vote.
That move was reversed in November, but it means rates are still effectively at emergency levels.
Mr Carney has previously warned that the UK has a lower “speed limit” than it did in the past – meaning the economy can only grow more slowly before it risks overheating and generating extra inflation, forcing him to raise interest rates.
He warned that Britain has missed out on the surge in investment which has taken place in other rich economies, which limits the economy’s capacity for growth.
“Since the start of 2016 up until now we have seen much less investment than would have expected,” he said in the interview, at the International Monetary Fund’s Spring Meeting.
“Unfortunately that means in the short-term that the speed limit is not increasing. Productivity is not increasing, which will limit the rate at which people's wages can pick up.”
