Carney Hints That BOE Rate Hike Next Month Isn’t a Done Deal

Bank of England Governor Mark Carney said the U.K. should prepare for a few interest-rate increases over the next few years, but hinted that the widely expected hike next month isn’t a done deal.

In a BBC interview that sent the pound lower, Carney said policy makers will make their decision “conscious that there are other meetings” at which they could act this year. He also acknowledged recent soft U.K. economic numbers, though added that the Monetary Policy Committee will look at the economy “in the round.”

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Before the interview, investors were pricing in a more than 80 percent chance of a 25 basis-point rate increase in May, though confidence in that view had slipped a little this week after weak inflation data. While Carney never put a date on the next move, an MPC decision to keep rates on hold next month risks reviving memories of flip flops in 2014, which landed him with a reputation as an “unreliable boyfriend.”

An increase is “likely” this year, Carney said in the comments, made on the sidelines of the IMF meetings in Washington. He noted that the central bank will have to adjust its decisions around the Brexit negotiations and eventual divorce deal to “keep the economy on a stable path.”

The next big data release will be the first estimate of GDP for the three months through March. It will be published on April 27.

What Our Economists Say“The economic data have been solid enough, we thought, to set a tightening next month in stone. But the explicit reference to meetings later in the year cuts the odds of a rate hike in May. This brings the GDP data into sharp focus.”

–Jamie Murray and Dan Hanson, Bloomberg Economics
For more, see our U.K. Insight

The pound tumbled 0.9 percent after the interview was published, and was back below $1.41 late yesterday in London. It had advanced to as high as $1.4377 earlier in the week

While the governor acknowledged the pressure being faced by the British high street and “softer” data, he said the Monetary Policy Committee will “sit down calmly” and look at the broad economic picture when they meet in early May.

Carney also emphasized the impact of uncertainly surrounding the U.K.’s future trading relationship with the European Union, saying it had “prevented what would otherwise have been a surge in investment in this economy.”

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