Bank Of England May Not Raise UK Interest Rates This Year, Says Mark Carney

Carney May Not Ruin Christmas For Mortgage Holders After All
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Governor of the Bank of England Mark Carney during a news conference to present the UK Quarterly Inflation Report, in central London where he upgraded the UK growth forecast for next year and said the Bank expects unemployment to fall more quickly than previously thought.
Lefteris Pitarakis/WPA-Rota

Mark Carney has poured cold water on his previous suggestion that the Bank of England could start raising interest rates by the end of the year.

The Bank of England governor's latest stance saw him mockingly compared to an "unreliable boyfriend" by Labour Treasury select committee member Pat McFadden, who mused that the Bank was "one day hot and one day cold" about the prospect of increasing rates.

Under questioning by the committee, Carney told MPs that the decision to increase the cost of borrowing was "coming closer", but that it would be driven by when wages start to grow faster than inflation and the economic recovery eat up the remaining spare capacity as it returns to full productivity.

Carney's latest stance saw him mockingly compared to an 'unreliable boyfriend" by one of the committee members, Labour MP Pat McFadden, who mused that the Bank was "one day hot, one day cold" about the prospect of increasing rates.

This comes after Carney warned earlier this month in a speech at Mansion House that the time to raise interest rates was "coming nearer" and it "could happen sooner than markets currently expect", causing markets to pull back their expectation that the first interest rate rise would come next spring to the end of this year.

He told MPs today: "We have not yet seen incomes really growing, we expect that to happen and it will be consistent with a durable expansion."

"The exact timing of that [increases in interest rates] will be driven by the data."

Jeremy Cook, chief economist at the World First foreign exchange, said: "It is clear that Governor Mark Carney has decided to row back some of the surprising hawkishness in his recent Mansion House speech.

“I said the day after the speech that it seemed strange and out of character. I can now add that it should be largely forgotten and I maintain that interest rates will not rise in 2014 unless a notable increase in real wages is seen.”

Carney insisted that his speech to City grandees at Mansion House was "consistent' with discussions among members of the Monetary Policy Committee (MPC), which oversees the path of interest rates.

This comes after the most recent minutes from the MPC's meeting in June indicated that they found "somewhat surprising" the markets' expectation that they would first raise rates next spring, despite other officials warning in recent months that it was the "most likely" path.

MPC member David Miles on Monday said that the "firmer" state of the recovery meant that officials should soon vote to raise the cost of borrowing, which will hit mortgage-holders and those who have taken out loans.

Miles wrote in the Telegraph: “Having Bank Rate at 0.5pc is obviously not a normal or sustainable setting for monetary policy. We have had such low rates because the economy took a huge hit in the aftermath of the financial crisis of 2008. Until fairly recently we have not had any sort of sustained recovery from that. Now we have one.”

“This is more a case of scaling back the emergency medicine as the patient begins their recovery, rather than invasive surgery to deal with a sudden, life-threatening illness."

Other Bank rate-setters, like new chief economist Andy Haldane, said that an interese rate rise should happen sooner so that they remain "on the front foot".

Haldane argued that an early rise would allow for more gradual increases as the economic recovery takes hold, jarring with business secretary Vince Cable, who warned that a premature rise could leave the recovery "in jeopardy"

Chancellor George Osborne welcomed the Bank's efforts to be clear about interest rates, telling the BBC: "I think it is a good thing we actually have a bank governor who goes out and does a lot of television and radio and the like, and seeks to communicate clearly to people about the future path of interest rates."