19th January 2016
The Bank of England governor has ended speculation over the possibility of an imminent interest rate rise, stating “now is not the time”.
Speaking at Queen Mary University of London today, Mark Carney referred to previous comments he made last July, when he said that “a decision as to when to start raising Bank rate would come into sharper relief around the turn of the year”, which many took as a sign rates would start to rise around now.
Carney said today: “Well, the year has turned and, in my view, the decision proved straightforward – now is not the time to raise interest rates.”
His latest assurances will come as a great relief for mortgage borrowers, but will be frustrating for savers who have had nearly seven years of rock bottom rates.
He referred to volatility in China, which is suffering the lowest economic growth rate for 25 years, as well as a collapse in oil prices and poor wage growth at home as reasons for keeping the base rate on hold for longer.
Howard Archer, chief UK and European economist at IHS Economics, says: “This is clearly a dovish speech by the Governor, and it can only fuel belief that the Bank of England will not be raising interest rates before late-2016, and could delay acting until 2017. This was evident in sterling weakening to a seven-year low against the US dollar (around US$1.420) in the immediate aftermath of the speech and also re-testing a one-year low against the euro.
“Our current forecast is for interest rates to only edge up from 0.50% to 0.75% by the end of 2016, with a move penciled in for August – but we have to admit this looks ever more questionable. An August hike is based on the assumption that economic growth will be reasonable over the first half of 2016, earnings growth sees some renewed pick-up amid a tightening labour market and consumer price inflation trends gradually up.
“Also with consumers taking on more debt, there is a case for the Bank of England to enact a small rise in interest rates to act as a warning over borrowing. A small interest rate hike could make borrowers think harder about taking on more debt by highlighting the fact that interest rates will move higher over the coming months and years, while also hopefully not hugely affecting too many people
“Given Mark Carney’s cautious tone, and the increased possibility that consumer price will stay lower for longer due to oil price weakness, limited earnings growth and growth headwinds, it is clear that the Bank of England could well delay acting until very late on in 2016, or even 2017.”