In delivering the Peston Lecture at Queen Mary University, Carney indicated a rise is not on the cards in the near term and the monetary policy committee wants to see improvements in economic data before it reassesses this.
Notably, Carney also pointed to troubles in other parts of the world as well as domestic economic factor as reasons for this stance.
“Last summer I said that the decision as to when to start raising Bank Rate would likely come into sharper relief around the turn of this year,” he said. “Well the year has turned, and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates. This wasn’t a surprise to market participants or the wider public. They observed the renewed collapse in oil prices, the volatility in China, and the moderation in growth and wages here at home since the summer and rightly concluded that not enough cumulative progress had been made to warrant tightening monetary policy.”
The pound slid in value by 0.65% following the remarks to sit at $1.414.
Carney said the ‘journey’ to a rate rise has no set timetable, only an ‘expected direction of travel.’
He explained that the MPC will need to see sustained momentum relative to trend, domestic cost growth resuming a path consistent with headline inflation at 2% and core inflation measures moving towards target in order to go ahead with a rise.
“It is clear to me that, since last summer, progress has been insufficient along these dimensions to warrant a tightening of monetary policy,” Carney said. “The world is weaker and UK growth has slowed. Due to the oil price collapse, inflation has fallen further and will likely remain very low for longer. This may mean modestly weaker cost growth through this year, with the likely path for inflation, both headline and core, softer as a result. In short, recent developments suggest that the firming in inflationary pressure we had expected will take longer to materialise.”
