Carney kicks rate rise further down the road

BoE Governor Mark Carney said on Tuesday that the Bank had no timetable for raising interest rates and that the level of unemployment at which wages become inflationary could be lower than previously thought.

In what some will see as another U-turn, Mark Carney admitted that although last summer he had said the decision to raise rates would come into focus at the turn of the year, with the year having turned “now is not yet the time to raise interest rates”.

Mark Carney signaled an increase in interest rates is still some way off, using his first speech of the year to highlight global economic risks and persistent factors weighing on inflation.

Sterling and rate expectation of a Bank of England interest rate rise have taken a 1-2 punch in the past 24hrs from both the Governor and the newest member of the Monetary Policy Committee.

He says: “Our strategy in achieving the inflation target varies over time and depends on the nature of shocks that are hitting our economy and the risks our economy is facing”. And traders pushed their expectations for the next Bank Rate rise all the way back to September 2017, a month later than expected.

In a speech in London, Mr Carney said the United Kingdom economy isn’t yet ready for an increase in borrowing costs, given recent disappointments on growth and meager domestic price-pressures.

“To be confident enough…to raise Bank Rate, I would like to see evidence that growth is not slowing further, and that a broad range of indicators related to inflation are generally on an upward trajectory from their current low levels”, Vlieghe said.

Investors keep pushing back the date at which they expect borrowing costs to rise, with markets now pricing in an interest rate rise as late as 2018.

Employment Change also showed a much higher-than-expected rise in the number of people finding work of 267k when 235k had been forecast. In addition to weaker wage growth, surveys show the UK’s upcoming referendum on whether to remain part of the European Union is weighing on confidence.

“That means we’ll do the right thing at the right time on rates. But it has its limitations when you come to exit the zero interest rate environment because that is going to be sensitive to the data”. “Due to the oil price collapse, inflation has fallen further and will likely remain very low for longer”, Carney said.

Weaker pay growth may offer the Bank of England governor some vindication after officials left their benchmark interest rate at a record low this month.

Official figures said it expanded 6.9 per cent in 2015, compared with 7.3 per cent a year earlier and Beijing’s official target of “about seven per cent”.

Second, that wage growth strengthens and productivity improves.