Bank of England’s Carney dampens expectations of May interest rate rise

Bank of England’s Carney dampens expectations of May interest rate rise

 

The governor suggested that a base rate hike, from the current level of 0.5%, may not happen next month but he added a rise in 2018 is “likely”.

Financial markets had been pricing in an 85% chance of a May interest rate rise.

Following Carney’s comments, this has dropped to around 40%.

The governor told the BBC: “Prepare for a few interest rate rises over the next few years.”

But added: “I don’t want to get too focused on the precise timing, it is more about the general path.”

Carney also said some economy data had been “softer” lately, with retail sales and inflation measures falling by more than expected.

Brexit negotiations and the deal secured by the UK will have a significant impact on monetary policy decisions, the governor added.

The pound has fallen sharply following the Carney’s comments, which have taken markets by surprise, according to Michael Hewson, chief market analyst at CMC Markets.

He said: “Recent guidance from UK policymakers, as well as the two votes to raise rates at the last meeting, had raised expectations that even if a rate rise were to take place in May, any effect wouldn’t be particularly material in the short term.

“In this context the comments were a surprise… This isn’t the first time the Bank of England has led markets up the garden path, they did it in 2014, with the Bank of England governor earning the unfortunate moniker of the ‘unreliable boyfriend’ from a UK MP for his flip flopping on whether to raise interest rates.

“It would appear that after a short break he’s back.”