Bank of England governor Mark Carney defends leaving interest rates on hold again – as it happened
Britain’s central bank has left borrowing costs unchanged, and predicted that the slowdown in economic growth this year is temporary
- Summary: Carney forced to defend leaving rates unchanged again
- Carney press conference: highlights start here
- Governor blames Beast from the East for poor growth
- Doesn’t like being reminded of ‘unreliable boyfriend’ tag
- BREAKING: BoE leaves borrowing costs unchanged
- 2018 growth slashed
Here’s our economics editor Larry Elliott on today’s news from the Bank of England.
The Bank of England has put back plans for an increase in interest rates after the weaker-than-expected performance of the economy in early 2018.
Although the Bank believes the soft patch in growth will prove temporary, seven of the nine members of its monetary policy committee adopted a wait-and-see approach to raising official borrowing costs and voted to keep them at 0.5%.
Ben Brettell, senior economist at Hargreaves Lansdown, believes UK interest rates may not rise until 2019!
He blames the return of the ‘unreliable boyfriend’ today:
Not for the first time, Mark Carney’s policy of guiding the markets as to what to expect has backfired. A month or so ago it looked like a May rate rise was a near-certainty. The Bank of England had upgraded its growth forecasts and in March two members of the MPC broke ranks and voted for an immediate rate rise.
Markets were then pricing in a 90% chance of a rate rise at this month’s policy meeting.
Ranko Berich, head of market analysis at Monex Europe, says Mark Carney has once again disappointed those hoping for an interest rate rise – and the pound is paying the price:
“Once again, Mark Carney and the MPC have backed away from hiking interest rates mere months after hinting that a move was imminent. The MPC holding fire on hikes is not an issue in itself – the committee is data dependent, and recent UK data has been poor – but the dangers of making overly explicit statements on future policy moves have been made clear.
Carney’s warnings from February about rates rising earlier and to a greater extent now once again look like the promises of an unreliable boyfriend – and sterling is again suffering from being jilted at the rate hike altar.
Craig Inches, Head of Rates & Cash at Royal London Asset Management, thinks the Bank of England has fumbled the opportunity to raise interest rates today.
“In our view, the Bank has missed another opportunity to raise rates. Despite a run of soft data, the economy may turn out to be more robust than recent evidence, and the Bank’s newly lowered forecasts, suggest.”
“Interestingly two members of the MPC also agree with us, while the press conference by Mark Carney and colleagues was in fact more hawkish than the headlines suggest.
Newsflash: Sterling is now at a four-month low against the US dollar:
and it’s gone – GBPUSD hits a 4 month low: pic.twitter.com/5QvZp4qgQY
Peter Dixon of German bank Commerzbank believes the Bank of England sounded rather more dovish about interest rate policy today.
The forecast is conditioned on three rate hikes of 25 bps over the next three years and markets have slashed the probability assigned to a rate move in 2018.
Anthony Gillham of wealth manager Quilter thinks the media’s questions about Mark Carney’s unreliability hit a nerve today:
“Carney’s snap at the ‘unreliable boyfriend’ tag reveals the tension between the City clamour over interest rate changes and the real impact on households. Unsurprisingly, the Bank is probably feeling a little defensive that its own ‘forward guidance’ seems to have misled the City.
As a result he was keen to distinguish between the City and his other key stakeholder, UK households. He is right to do so, but the truth is that they’re inextricably linked.
Professor Costas Milas of the University of Liverpool thinks that Brexit uncertainty is helping to push Britain’s next interest rate rise further and further into the future.
He’s plotted the Bank of England’s GDP growth forecasts alongside economic policy uncertainty (based on the number of articles about economic worries in The Times and the FT).
Notice, also, that – unfortunately – current uncertainty has started picking up again. If this persists, August’s Inflation Report will trim further the growth forecast which will of course delay even further a possible hike.
Nice snap summary from Bloomberg’s Jill Ward:
Mark Carney says the @bankofengland still intends to deliver “modest” tightening after an unexpected economic slowdown derailed an interest-rate hike that investors had anticipated as soon as this month https://t.co/YPXxLxmKGh via @economics
After years of playing the ‘unreliable boyfriend’, Mark Carney is turning into the tetchy husband who keeps promising to take the bins out, but never quite gets round to it.
What’s the sensible thing to do? Do you act now or do you wait to see evidence that that momentum is re-asserting?
“The judgement of the majority of the committee is you wait to see for some evidence of that reasserting.”
The expectations of those individuals – more than three-quarters of those, whether they’re individuals or businesses – is that interest rates are going to go up, are likely to go up at some point over the course of the next years,probably a couple of times over the next year, year and a half.”
“So they are in a position that they can plan accordingly for that possibility, they don’t think it’s a guarantee, they think it’s a likelihood.”
The Monetary Policy Committee has been replaced by the Manyana Policy Committee. Interest rates are always going to rise tomorrow, never today.
The #MPC appears to have totally misunderstood recent disappointing UK economic performance. Monetary policy uncertainty and persistent low interest rates are having a negative impact on growth, not least by undermining sterling which squeezes consumers through higher inflation.
While the storms of February and March have given way to sunnier skies, the economic outlook for the UK remains clouded by Brexit uncertainties.
Despite the welcome agreement on a transition period, the terms on which the UK will trade with the EU beyond that period remain to be determined.”
Carney: Households don’t trade short-sterling. Quite right, but some have mortgages tied to Bank Rate. It’s still important.
“Faced with weaker economic data in the first quarter of 2018, the Bank of England’s Monetary Policy Committee decided to opt for caution and to leave interest rates unchanged at 0.5% today. While the decision had been largely anticipated, it marks a significant shift from expectations only a few weeks ago for a rate rise in May.
“The strong labour market, together with a range of business surveys as well as what we see on the ground talking to our clients, do not point to a material shift in the economic environment, and support the view that the weakness at the start of the year is likely to be at least partially reversed further on this year.
The only people who throw that term at me are in this room.
So now everyone else can throw it at me when I go out of this room.”
Q: The Office for National Statistics has just lowered its estimate of the UK trade deficit by a quarter – so how reliable is Britain’s data, and does it mean that the UK is still ‘reliant on the kindness of strangers’ [an old Carney quote]
Q: What impact would a hard Brexit have on the Bank’s economic forecasts?
Mark Carney replies that a hard Brexit would prompt a change the Bank’s forecasts. But such a scenario it’s not currently included in its economic projections, which are based on a ‘transition deal’ being agreed and implemented.
Q: Today’s quarterly inflation report suggests that some business surveys are painting a better (and more optimistic) picture of the UK economy than the official GDP data. So which ‘soft’ data do you take seriously?
Deputy governor Ben Broadbent argues that there’s no contradiction between strong business surveys (which often track sentiment) and weaker GDP data (which measures actual output).
Good points from Duncan Weldon of the Resolution Group:
Bank comms quite confusing. “We haven’t really changed our outlook much” coupled with “we are a bit less sure on the rate path”.
Feels like an attempt to get out of forward guidance/keep their options open.
Which given Brexit talks uncertainty this year is sensible.
But when you’ll relied on guidance to the extent Carney has, it’s hard to get across that you are genuinely unsure.
Q: What’s the biggest challenge for your successor, governor? Brexit, perhaps?
The biggest challenge, and opportunity, for the country is the Brexit negotiations, Mark Carney replies. He won’t be drawn about his replacement, though (Carney is due to leave the Bank in June 2019).
Q: Today’s inflation report seems to suggest that interest rates will rise three times in the next three years – should households expect that?
Carney repeats his line that UK households and businesses broadly expect a rate rise this year, and two increases in the next 18 months. But it all depends on how the economy develops.
Q: Hasn’t your message on interest rates been diluted since February (when the Bank said rates would probably rise faster than markets expected)?
Our ‘core message’ hasn’t changed, Carney insists.
Some snap reaction to Carney’s press conference:
There seem to be two immutable laws of Carney’s governorship:
1) Rates never go up
2) Rate rises are always around the corner! pic.twitter.com/LjFJ1MfZHj
Bank of England Governor Mark Carney says it’s only financial journalists who call him the “unreliable boyfriend”.
But let us not forget, it was Labour’s @patmcfaddenmp who coined it!
Slight dig from Carney on EU financial orgs saying they only just recovered from financial crisis: ‘we fixed ours a long time ago’
Q: Are you failing to communicate to the UK public?
Carney says that the UK public have understood the Bank’s message in recent years, that interest rates will rise gradually as economic conditions merit it.
Q: Are you worried that the ‘unreliable boyfriend’ tag will stick, as you’ve once hinted that a rate rise was coming, but not delivered?
The households and businesses we speak to don’t trade short sterling**, Carney shoots back. They want to know the general orientation of the economy, that the economy is healthy, and the likely path of interest rates.
Now everyone else can use it too.
Q: The money markets have priced out an interest rate rise this year. Are you happy with that?
Carney repeats that the Bank is primarily concerned with households and businesses (suggesting that he’s focused on higher things than mere City traders and scribblers).
Q: In the past you’ve told us to watch the data, but today you’re saying that the economy isn’t as weak as the data suggests. So how should people judge what the Bank is going to do?
The weather may have improved, but Britain’s economy is still “clouded by Brexit uncertainty” says governor Carney.
The position should become clearer later this year as key decisions about Britain’s future relationship with the EU are made, he adds.
The key points from Carney’s statement thus far:
Carney: was the fall in Q1 growth a one off, or did it suggest broader economic weakness? ”Was it weather, or climate?” Bank suggests it was temporary. Growth will pick up through the rest of year
BoE’s Carney: Labour Market ‘Reassuringly Strong’
– Global Growth Above Trend, Despite Softening
BoE’s Carney: Brexit Drag On Economy Is Not Intensifying, Is Persisting
The overall economic climate in the UK looks ‘little changed’, Mark Carney says – perhaps a hint that we shouldn’t get too worried about the lower 2018 growth forecast.
The drag from Brexit on business investment has continued, but has not intensified, says Mark Carney.
On the consumer side, the bank believes that consumption will pick up as the real income squeeze comes to an end.
Mark Carney says the UK economy has not met the Bank’s expectations over the last three months.
Growth and inflation have both been lower than the Bank’s forecasts in February, the governor explains.
The Bank of England is holding a press conference now to explain today’s decision.
Governor Mark Carney is in the chair, accompanied by deputies Ben Broadbent and SIr David Ramsden.
Reaction to the Bank of England decision is flooding in.
Tom Stevenson, investment director for Personal Investing at Fidelity International, points out that the BoE has pulled another u-turn – having hinted in February that rates would rise today:
“Mark Carney really is the ‘unreliable boyfriend’. Leaving the base rate at 0.5% – what was once thought of as an emergency rate – is another big U-turn for the Bank of England governor.
“Until a few weeks ago, a further quarter point rate hike to 0.75% looked almost guaranteed. But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady’s increasingly unhelpful forward guidance. The Bank of England has marched investors up to the top of the hill only to march them back down again.
The Bank of England (BoE) chose to keep rates on hold at today’s meeting in light of recent weakness in GDP, falling house prices, lower-than-expected inflation and, no doubt, Brexit uncertainty. There has been broad based weakness in economic data across the globe, ex-US, after a strong Q4 2017 that has led central banks to back away from rate hikes in the near term.
“The last quarter has seen muted economic activity – with growth of only 0.1% – aligned with more modest forecasts of future growth.
“The reasons for caution shown today by the Bank of England are clear. The pound appears to have stabilised reducing future inflation risk, UK growth expectations are lower, and the global picture is less certain.
The Bank is sticking to its promise that interest rates will probably rise in the months ahead.
The minutes say:
The Committee’s best collective judgement therefore remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon.
As previously, however, that judgement relies on the economic data evolving broadly in line with the Committee’s projections. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.
The pound has fallen, as City traders digest the Bank of England’s decision to cut its growth forecasts and left UK interest rates unchanged.
Having put its nose over the $1.36 mark in late-morning trading, sterling has now turned tail and fallen to $1.351. That’s close to a four-month low.
(Sad trumpet noise) pic.twitter.com/0njueemlsk
The Bank of England says uncertainty over Britain’s exit from the European Union is weighing on the economy.
The minutes of today’s meeting say:
Although business investment is still restrained by Brexit-related uncertainties, it is being supported, like exports, by strong global demand and accommodative financial conditions.
Household consumption growth remains subdued, in line with the modest growth in real income over the forecast period.
A majority of the Bank’s policymakers wanted to leave interest rates alone until they know if last quarter’s weak growth was just a blip, or something more serious.
The Bank’s minutes say:
“The recent weakness in data for the first quarter had been consistent with a temporary soft patch, with few implications for … the outlook for the UK economy,….
There was value in seeing how the data unfolded over the coming months, to discern whether the softness in Q1 might persist.”
Ouch! The Bank of England has taken an axe to its growth forecasts.
It now expects the UK economy to only grow by 1.4% this year, down from 1.8% expected just three months ago.
The Bank of England also downgraded its forecast for UK growth to 1.4% for 2018, down from 1.8% predicted in February
Seven Bank of England policymakers voted to leave borrowing costs on hold.
But two members of the Monetary Policy Committee voted to hike. The hawks, Ian McCafferty and Michael Saunders argued that borrowing costs should go up.
BREAKING: The Bank of England has voted to leave UK interest rates unchanged.
The headline cost of borrowing remains at 0.5%. The Bank has also left its asset-purchase scheme (QE) unchanged.
The pound has crept back up over $1.36 against the US dollar, up 0.5% today, as traders brace for the Bank of England decision to hit the wires at noon precisely.
So #GBPUSD trading 1.36 ahead of the Bank of England meeting looks to be pricing in the status quo: 7-2 MPC split vote to stay on hold and largely unchanged MPC outlook on economy/policy. Markets will need more (ie, a third rate hike dissenter to sustain a move above 1.36) pic.twitter.com/i9enMrjwqW
Today’s interest rate decision is being taken by the nine members of Britain’s Monetary Policy Committee – a mixture of top Bank officials and independent experts.
Two external members, Ian McCafferty and Michael Saunders, are on the hawkish end of the committee table – they voted to raise rates in March, and may do so again.
Excitement is mounting in the City, with just 30 minutes until the Bank of England announces its interest rate decision.
Most experts expect borrowing costs to remain unchanged. But you never know….central bankers have pulled a few surprises over the years (and a shock move always has more impact than a widely-trailed one).
We know that another rate hike should come at some point before the end of the year, and May looked very likely just a few weeks ago, though the combination of flagging inflation and underwhelming growth means we’re now just 1/5 for rates to remain at 0.5%.
Some commentators even believe that a cut to interest rates would serve the economy better than a rise, though Mark Carney and Co look unlikely to take such a daring decision at 10/1.”
Britain’s chancellor has welcomed the news that Royal Bank of Scotland is paying a $4.9bn penalty to US authorities.
The fine for misselling financial instruments that contributed to the 2008 financial crisis has been hanging over RBS for years. Philip Hammond hopes that last night’s settlement will make it easier to sell the taxpayer’s stake in the bank.
“I welcome the agreement in principle to resolve this long-standing issue which will, when finalised, remove a major uncertainty for the UK taxpayer.
“It marks another significant milestone in RBS’s work to resolve its legacy issues, and will help pave the way to a sale of taxpayer-owned shares.”
RBS shares jump 6% after bank agrees to pay smaller-than-expected $4.9 billion to settle U.S. mortgage bond investigation. pic.twitter.com/4C03VzklG6
There’s drama in Italy today, as two populist parties suddenly move closer to the levers of power.
Late last night, former PM Silvio Berlusconi dropped his opposition to an alliance between the right-wing, anti-immigrant League party, and the anti-establishment Five Star Movement.
Governing agreement between the two Italian populist parties that all investors feared is being finalised aaaaand spreads on Italian 10yr government bonds are lower than they were before the election. pic.twitter.com/Pa4FUvsYxB
The Italian president has suggested parties have until this afternoon to come up with a workable government before a technocrat government is imposed.
Former Prime Minister Berlusconi has suggested that Forza Italia may back a government led by the “anti-party” Five Star movement.
Over in the City, shares in BT has slumped by 8% to a five-year low.
Investors are unhappy that BT expects revenues to fall by 2% this year, while earnings will also fall year-on year.
The telecoms company said the job losses would come mainly from back office and middle-management roles. About two-thirds of the job cuts will fall on its UK workforce of about 80,000, with the remainder coming from the 18,000 staff it employs internationally.
BT is also moving out of its central London headquarters in St Paul’s, where it has been headquartered since 1874 when the group was known as the General Post Office, as part of a wide-ranging restructuring.
“While some parts of the consumer-facing businesses are seeing good growth and investors should be interested in the plans to restructure, the group is still under pressure on a number of fronts and therefore the shares are no better than a hold.”
want to know why BT cutting 13,000 jobs?
they pouring £bns into pension fund – £4.5bn by 2020 and £900mnpa from 2020-30
And cost of football rights – £885mn for 3yr deal
£3.7bn capex pa for broadband etc
BT paying ££bns to Premier League clubs and Uefa for football TV rights, now axing 13,000 people’s jobs to save £1.5bn. Eh…? https://t.co/yYFiF1fZsu
We also have fresh evidence that Britain’s manufacturers and construction firms both struggled in March.
The Office for National Statistics has reported that manufacturing output fell by 0.1% in March, and has been unimpressive since the start of this year.
UK construction output fell -2.7%q/q in Q1, biggest quarterly fall since 2012, but slightly better than the GDP first estimate of -3.3%q/q. Growth across the board though – yuk! pic.twitter.com/Y8PIvMhEi1
“Manufacturing was broadly flat throughout the first quarter following several months of strong growth, with no evidence that the bad weather hampered UK factories as both domestic and international sales stalled. Machinery, transport and computer manufacturers all saw their output grow. This was largely offset by falling production of electrical equipment and oil refining.
“The whole construction sector performed poorly in the first quarter with housing, repair work and public works seeing particularly large falls.
2.7% fall in construction output in Q1 2018, with repair and maintenance (-2.8%) and new work (-2.6%) both falling. Construction output fell 2.3% in the month of March #GDP https://t.co/T8z5uzNWXW pic.twitter.com/Y7e8UGBUF7
Newsflash: Britain’s trade deficit has narrowed, thanks to a drop in imports from non-EU countries.
The Office for National Statistics has reported that Britain bought fewer ships and aircraft from the rest of the world in the first quarter of 2018. This helped to cut the UK total trade deficit (in goods and services) by £700m to £6.9 billion in the three months to March 2018.
The UK trade in goods deficit with non-EU countries narrowed £1.5 billion to £9.9 billion in the three months to March 2018, while the deficit with the EU widened £0.4 billion to £24.7 billion over the same period.
UK’s total trade deficit narrowed by £0.7bn to £6.9bn in Q1 2018, mainly due to falling goods imports – particularly ships, clothing and aircraft – from non-EU countries https://t.co/0lRIUC4ra0 pic.twitter.com/7HAq7WvO4p
Today is dubbed ‘Super Thursday’ because the Bank of England will release its interest rate decision, publish the minutes of the meeting, and also give us a fresh assessment of the UK economy (the Quarterly Inflation Report).
So there’ll be lots to watch out for at noon. Including:
The pound could surge, or slump, depending on what the Bank of England does today.
Viraj Patel, a currency strategist at ING, has predicted that sterling could slump by two cents to $1.3350 if the Bank votes unanimously to leave interest rates on hold.
the pound could rally or slump up to 2% depending on how the Bank of England members vote today https://t.co/l5VfItsnOY
This chart of City expectations for today’s interest rate decision shows why the old ‘unreliable boyfriend’ line is doing the rounds again.
Expectations of a UK interest rate rise today have faded fast in recent weeks, says Lukman Otunuga, research analyst at FXTM.
That’s partly thanks to Mark Carney’s warning in April that Britain’s economic data was looking ‘mixed’
Only one month ago, the markets were predicting a more than 90% probability of a UK interest rate increase this month. Today, this probability has evaporated to less than 15%.
A crippling combination of negative economic data, disappointing growth figures and another reversal in tone from BoE Governor Mark Carney has been the driver behind these minimal expectations of a UK interest rate rise today.
Mark Carney was originally dubbed an ‘unreliable boyfriend’ nearly four years ago.
Labour MP Pat McFadden coined the tag during a select committee hearing, when he teased the governor for promising interest rate hikes, and then changing his mind.
“We’ve had a lot of different signals. I mean it strikes me that the Bank’s behaving a bit like a sort of unreliable boyfriend.
“One day hot, one day cold, and the people on the other side of the message are left not really knowing where they stand.”
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
”Some might say Bank of England Governor Mark Carney made a mess of things again. As late as February he was still very positive on monetary policy. But dismal retail sales, disappointing GDP growth and the accelerating softening of inflation have burst Carney’s bubble.
Since Carney’s credibility is obviously at stake again the question for the BoE rate decision then becomes: will Mark Carney pull off a Houdini worthy escape act, or will markets once again call him out as an “unreliable boyfriend”?
BT to cut 13,000 jobs over three years, “mainly back office and middle management”. Hiring 6,000 staff to “support network deployment and customer service”.https://t.co/bEHWzzPOBp
Strong first quarter from Next, too. Full-price sales up 6%. Performance “better than we expected”, around £40m ahead of forecast. Increases FY pre-tax profit guidance from £705m to £717m
Fairly cheery news from Next too. Sales in Q1 better than expected, helped by heatwave, and chains says “sales overperformance” should add £12m to its FY profit. Sales boosted by online…which as graph shows continues to outdo its shops… pic.twitter.com/X4hR9zkt1w
Source: The Guardian