BoE Carney U Turns on Interest Rates

The Bank of England has been accused by MPs of behaving like an unreliable boyfriend, giving mixed messages on when the first rise in interest rates is likely.

The Bank’s governor, Mark Carney, appeared to play down the need for an early rate rise when questioned by the House of Commons Treasury select committee on Tuesday, despite earlier leading markets to believe a hike was possible before the end of 2014.

Pat McFadden, Labour MP and a member of the TSC, compared the Bank and its stance on rates to an “unreliable boyfriend – one day hot, one day cold”.

Andrew Tyrie, the committee’s chairman, said that since Carney arrived at the Bank almost a year ago, they have had “quite a lot of guidance, not all of it pointing in the same direction”.

Under pressure to explain the apparent confusion surrounding the Bank’s stance on rates, Carney insisted the monetary policy committee (MPC) had been consistent in approach, and said the data would dictate the timing of the first rate rise.

However, he suggested there was still a significant amount of slack in the economy to be used up before a rate rise would be necessary, and pointed to weaker-than-expected wage growth as an argument against a hike.

“The best collective judgement of the MPC, which I share, is that there is additional spare capacity in the labour market that can be absorbed further before we would look to begin to normalise interest rates. The exact timing of that will be driven by the data.”

He said several times that when the time does come to start raising rates, increases will be “limited and gradual”.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza