Menu

Bank of England’s Governor says interest rates to stay low

19 Jan 2016
Chibuike Oguh

Summary

Carney said cost pressures are weaker in the U.K. than in the U.S. and that the U.K. is more exposed to global currents in inflation given that its economy is more export-oriented.

Governor, Bank of England, Mark Carney

The Governor of the Bank of England (BOE), Mark Carney, has said that Britain’s economic growth is not strong enough to withstand an interest rate rise.

In a speech delivered at the Queen Mary University in London on Tuesday, Carney said that he sees no need to tighten the U.K.’s monetary policy given the renewed collapse in oil prices, the volatility in China, and the slowdown in wage growth in the United Kingdom.

“Last summer I said that the decision as to when to start raising Bank Rates would likely come into sharper relief around the turn of this year,” Carney said. “Well the year has turned, and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates. . . The world is weaker and UK growth has slowed.”

Analysts were expecting the BOE to follow its United States counterpart – the Federal Reserve – in raising interest rates amidst strong economic growth. The UK economy grew by about 2.4 percent in 2015, making it the fastest growing economy in the European Union.

However, Carney drew sharp contrasts between the U.S. and U.K. economies, which warranted different monetary policy stances by the two central banks.

Carney said cost pressures are weaker in the U.K. than in the U.S. and that the U.K. is more exposed to global currents in inflation given that its economy is more export-oriented. (The U.K.’s export to GDP ratio is about 30 percent while the U.S.’s is about 13 percent.) He also said in contrast to the U.S., the UK is undergoing a fiscal consolidation given the decision by the Conservative government led by David Cameron to balance the UK’s budget by 2020.

“Of course there is nothing particularly special about foreign central banks’ policy rates,” he said. “What is most important is whether the shocks to which others are responding are similar to those with which the Monetary Policy Committee must contend.”

Carney said three conditions must be met before the BOE’s Monetary Policy Committee changes its outlook on interest rates. He said the UK’s economic growth must be higher than the average trend, wage growth and productivity must strengthen, and core inflation must approach the target rate of 2 percent.

“The three factors I have described are guides to monetary policy decisions, but there are no magic thresholds,” Carney said. “This journey doesn’t have a set timetable; only an expected direction of travel.”

Chibuike Oguh is Financial Nigeria's Frontier Markets Analyst


Other Photos/Videos

Advertisement

Most Popular News

Subscribe Financial Nigeria Magazine
© Copyright 2024 Financial Nigeria International Limited. All Rights Reserved.   | Terms of Service | Privacy | Disclaimers