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Carney suggests rate rise is still some way off

Bank of England governor Mark Carney has suggested interest rates may be some way off saying there is still slack in economy that needs to be absorbed before a rise is considered.

In the February inflation report the Bank axed forward guidance based on employment falling below 7 per cent and moved to a system of looking at 18 indicators, among which is spare capacity in the economy.

When questioned about market expectations of a rate rise in Q2, Carney declined to comment but suggested the Bank is unlikely to raise interest rates soon.

The Bank’s May inflation report, published this morning, says: “Although the margin of spare capacity has probably narrowed a little since [February], the Monetary Policy Committee continue to judge that there remains scope to make greater inroads into slack before raising the Bank rate.”

In a press conference, Carney said: “That slack is evident in the 1.4 million people who are working part-time because they are unable to find full-time work, as well as in an unemployment rate of 6.8 per cent.”

Today’s inflation report also maintains the Bank’s position that when a rate rise comes it will be gradual and to a “level materially below its pre-crisis average”.

It also predicts growth of 2.9 per cent for next year, up from the Bank’s February forecast of 2.7 per cent. The forecast for this year remains unchanged at 3.4%.

On concerns the housing market is in danger of stalling economic recovery, the Bank of England said the Financial Policy Committee will take responsibility for taking action on cooling the market if necessary.

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Politically convenient stance methinks?

  2. GP Styles (GPS Economics) 14th May 2014 at 2:57 pm

    Tend to agree with comment above. But the biggest issue relates to the poor record of macro-prudential tools in controlling house price inflation….refer BIS paper published last year.

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