The Bank of England has been accused by MPs of behaving like an unreliable boyfriend, giving mixed messages on when the first rise in interest rates is likely.
The Bank's governor, Mark Carney, appeared to play down the need for an early rate rise when questioned by the House of Commons Treasury select committee on Tuesday, despite earlier leading markets to believe a hike was possible before the end of 2014.
Pat McFadden, Labour MP and a member of the select committee, compared the Bank and its stance on rates to an "unreliable boyfriend – one day hot, one day cold".
Andrew Tyrie, the committee's chairman, said that since Carney arrived at the Bank almost a year ago, there had been "quite a lot of guidance, not all of it pointing in the same direction".
Under pressure to explain the apparent confusion surrounding the Bank's stance on rates, Carney insisted the monetary policy committee (MPC) had been consistent in approach, and said the data would dictate the timing of the first rate rise.
However, he suggested there was still a significant amount of slack in the economy to be used up before a rise would be necessary, and pointed to weaker than expected wage growth as an argument against a hike.
"The best collective judgement of the MPC, which I share, is that there is additional spare capacity in the labour market that can be absorbed further before we would look to begin to normalise interest rates.
The exact timing of that will be driven by the data." He said several times that when the time did come to start raising rates, increases would be "limited and gradual". Markets have been left confused by Carney's guidance on rates in recent weeks.
At the May inflation report, Carney said the first rise in rates – on hold at 0.5% since March 2009 – was most likely in the second quarter of 2015. A month later he surprised the City by warning in his Mansion House speech that a rise "could happen sooner than markets currently expect".
His comments triggered a sharp rise in the pound as investors brought forward their expectations of the timing of the first rate rise.
Carney said that as a governor of a G7 central bank for the past seven years – in Canada and then the UK – he was well aware that his comments would move markets.
"We'd like to see the market adjust to the data. Just as our opinions are updating, [markets] should adjust to the data," he said.
theguardian.com
The Bank's governor, Mark Carney, appeared to play down the need for an early rate rise when questioned by the House of Commons Treasury select committee on Tuesday, despite earlier leading markets to believe a hike was possible before the end of 2014.
Pat McFadden, Labour MP and a member of the select committee, compared the Bank and its stance on rates to an "unreliable boyfriend – one day hot, one day cold".
Andrew Tyrie, the committee's chairman, said that since Carney arrived at the Bank almost a year ago, there had been "quite a lot of guidance, not all of it pointing in the same direction".
Under pressure to explain the apparent confusion surrounding the Bank's stance on rates, Carney insisted the monetary policy committee (MPC) had been consistent in approach, and said the data would dictate the timing of the first rate rise.
However, he suggested there was still a significant amount of slack in the economy to be used up before a rise would be necessary, and pointed to weaker than expected wage growth as an argument against a hike.
"The best collective judgement of the MPC, which I share, is that there is additional spare capacity in the labour market that can be absorbed further before we would look to begin to normalise interest rates.
The exact timing of that will be driven by the data." He said several times that when the time did come to start raising rates, increases would be "limited and gradual". Markets have been left confused by Carney's guidance on rates in recent weeks.
At the May inflation report, Carney said the first rise in rates – on hold at 0.5% since March 2009 – was most likely in the second quarter of 2015. A month later he surprised the City by warning in his Mansion House speech that a rise "could happen sooner than markets currently expect".
His comments triggered a sharp rise in the pound as investors brought forward their expectations of the timing of the first rate rise.
Carney said that as a governor of a G7 central bank for the past seven years – in Canada and then the UK – he was well aware that his comments would move markets.
"We'd like to see the market adjust to the data. Just as our opinions are updating, [markets] should adjust to the data," he said.
theguardian.com
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