Sterling slides as Carney casts doubt over May rate rise

Bank of England (BoE) governor Mark Carney has signalled that an interest rate rise in May could be pushed back, contrary to market expectations.

In an interview with the BBC on Thursday, Carney (pictured) said the Monetary Policy Committee (MPC) would not rush to a rate rise as it had to consider a lot of “mixed” economic data, such as last month’s low inflation figures.

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

“The biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with.

“And then we will adjust to the impact of those decisions in order to keep the economy on a stable path.”

However, traders have been pricing-in an interest rate rise for some time now and economists were expecting a rise of 0.5% to 0.75% on 10 May.

Markets reacted to Carney’s comments with sterling falling 0.38% against the dollar to $1.40.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said Carney’s comments show “you shouldn’t count your chickens before they’re hatched”.

He said: “The market gets awfully worked up around precisely when the next interest rate rise will be, but actually the longer-term picture is more important, and that’s a period of low interest rates which increase only gradually.”

Mixed signals

Architas investment director Adrian Lowcock said Carney’s guidance has yet again proven to be “hugely unreliable” and the BoE “lack conviction in their views – just what you don’t want from a central bank”.

He explained that although the economic data has been “soft”, the UK could see an improvement later this year as inflation has begun to ease and wages are recovering.

Lowcock said: “Brexit continues to weigh on the country and its stock market, but the global economy is in good health which provides support to the UK’s economy as well.

“The first interest rate rises should not be linked to inflation as they are as much about sending a message that the UK economy is strong enough to support a return to normal.

“Given the mixed signals the Bank of England are sending out it is difficult for investors to make any decisions based on where interest rates might be.”

However, he added that investors should follow in the footsteps of fund managers and ignore macro-economic data and instead focus on the best companies they can buy.

He continued: “Investors should do the same, concentrate on what you know and can control and not on the confusing messages coming from Mark Carney.”

Jason Hollands, managing director at Tilney, said it is important to remember that Carney is just one the members of the MPC and it is “still very much up in the air”.

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