The Latest: UK central bank defends change of mind on rates
LONDON (AP) — The Latest on the Bank of England’s interest rate decision and new economic forecasts (all times local):
Bank of England Governor Mark Carney has defended himself against a charge that his public comments on interest rate moves lack credibility.
Carney gave a heavy hint just three months ago that the bank would raise interest rates again in May. Instead, the bank kept its main interest rate unchanged at 0.5 percent Thursday, blaming weaker-than-expected growth and inflation data.
It’s not the first time that Carney has flagged up a rate hike only to pull back, which has prompted some to tag him an “unreliable boyfriend.”
Carney said households and businesses want their central bank to be open to changing its views when the information changes, “that we’re not on some pre-set course” and that “we are prudent not passive.”
Though the bank did not hike rates, Carney insisted an increase remains on the table should the economy start growing in line with the bank’s expectations.
Bank of England Governor Mark Carney says the British economy is in better shape than recent growth figures suggest.
In comments after the bank held its main interest rate at 0.5 percent, Carney said the sharp economic slowdown witnessed in the first quarter was likely a temporary phenomenon related to the bad weather that gripped much of the country. In the first three months of the year, the British economy barely grew, expanding at a quarterly rate of just 0.1 percent, with the construction sector faring particularly badly.
Carney said the bank’s nine-member rate-setting body thinks the “underlying pace of growth remains more resilient than the headline data suggest.”
Tepid growth was one of the reasons why the bank opted against hiking rates at this month’s meeting, as Carney had indicated just three months ago was likely.
He said Thursday that rates would rise, albeit modestly, if the economy evolves in line with the bank’s new projections.
The pound has slipped after the Bank of England held interest rates and investors priced in a lower likelihood that there would be an increase any time soon.
In early afternoon London trading, the pound was 0.3 percent lower at $1.3511.
The bank’s nine-member Monetary Policy Committee voted 7-2 to keep its main rate on hold at 0.5 percent. That wasn’t a surprising decision following weaker than anticipated growth and inflation data.
David Cheetham, chief market analyst at XTB, said the overall tone of the minutes to the bank’s meeting suggest that it may be the case of “one-and-done as far as hikes are concerned.”
Last November, the bank raised its main interest rate for the first time in a decade, taking back the rate cut it enacted in Aug. 2016, in the immediate aftermath of Britain’s surprise vote to leave the European Union.
Cheetham said that hike “now appears to have been more a case of a reversal of the post-Brexit cut rather than the beginning of a sustained cycle of interest rate increases.”
The Bank of England has kept its main interest rate on hold as a run of soft economic data has made it more cautious about the outlook for Britain.
The bank’s rate-setting committee voted 7-2 on Thursday to keep the main rate unchanged at 0.5 percent, as widely expected in financial markets.
Just a few weeks ago, investors thought the bank would raise the rate by a quarter-point to its highest level since early 2009. However, that all changed after figures showed the economy barely grew in the first three months of the year and inflation fell by more than anticipated.
Many experts blame uncertainty related to Britain’s exit from the European Union for the slowdown.