Speaking to the Treasury Select Committee this morning, 12 days after saying the base rate could rise “sooner than markets currently expect”, Carney said stronger growth may well be offset by the fact there remains spare capacity in the UK economy.
That sent sterling down from $1.702 to $1.697, the pound having risen above $1.70 earlier this month as markets began pricing in a 2014 rate hike following Carney’s Mansion House speech.
Carney said this morning that recent wage data suggests spare capacity remains a difficult hurdle for the economy to overcome.
“Taken in isolation the continuation of development on the wage front suggests to me that there has been more spare capacity in the labour market than we previously had thought,” he said.
Labour MP Pat McFadden subsequently accused the Bank of inconsistent messaging, describing it as behaving like “an unreliable boyfriend: one day hot, one day cold”.
Carney acknowledged he had intended to adjust market expectations with his Mansion House comments.
“We [would have liked] to see the market adjust to the [recent] data. We were surprised that it had not. There were many elements of the speech but that was one point,” he said.
He repeated his assertion that the decision over the timing on any rate increase remains dependent on economic data – a point which he had also highlighted in his Mansion House speech.
“To be clear, the MPC has no pre-set course. The ultimate decision will be data-driven. At this point it is safest to conclude, as the MPC has, that there remains scope for spare capacity to be used up before policy is tightened,” he said in the speech on 12 June.