Inflation will remain low for some time
‘Unforgiving’ economy not ready for rate rise says Carney
Bank of England governor Mark Carney has scotched any likelihood of a rise in interest rates in the near future because of the turmoil in global stock markets and weakening growth.
Mr Carney said the “unforgiving” state of the world economy meant that tighter monetary policy was “not yet necessary”.
His comments, which led to a fall in the pound against the dollar, come just six months after he had put markets on alert for a rise in interest rates at the beginning of this year.
Most economists have for some weeks predicted no change in interest rates until at least November and probably early next year.
The unexpected sudden downturn in global equity markets following warnings of a slowdown in China and the slump in the oil price has forced many to reassess the outlook. Some will also be looking at whether the US Federal Reserve will put a brake on further expected rate rises this year.
Mr Carney said: “It is clear to me that since last summer, progress has been insufficient to warrant a tightening of monetary policy. The world is weaker and UK growth has slowed.
“Due to the oil price collapse, inflation has fallen further and will likely remain low for longer.
“It has always been the case that, because the economy is subject to unforeseen disturbances, the precise path for Bank rate rises cannot be pre-ordained.”
David Lamb, head of dealing at the forex specialists Fexco said: “The prospect of a UK interest rate rise hasn’t been kicked into the long grass. The Governor hoofed it right out of the park.
“Mark Carney’s prediction – made last summer – that we would have greater clarity on interest rates at the start of 2016 has been completely overtaken by events.
“Six months on, the prospects for UK interest rates remain as clear as mud.
“Even though UK inflation crept up a notch to a paltry 0.2% in December, tumbling oil prices will continue to drag down prices. Against a backdrop of extreme Chinese volatility and slipping rates of both growth and wages in the UK, none of the stars are aligned for a rate rise any time soon
“With a UK rate hike now receding into the distance once again, monetary policy in London and Washington will continue to move in opposite directions.
“As a result the pound has tumbled against the dollar, and it is even slumping against the Euro too.
“The combination of skittish equity markets and the vanishing prospect of a rate hike means investor appetite for Sterling is eroding – and as a result the Pound’s gradual slide is likely to continue.”