MP Pat McFadden tells Mark Carney: You’re like an unreliable boyfriend
The Bank of England was slammed by MPs yesterday, taking fire for erratic communication on when interest rates would likely begin to rise.
Governor Mark Carney and other senior policymakers sent sterling down during their quizzing by politicians yesterday. Some analysts suggested that the policymakers were backing away from their new hawkish stance, with more emphasis on the need for wage growth before rates begin to rise than in earlier statements.
“For the record, we expect that there will be a pickup in earnings growth… there has not been an acceleration in earnings, in actual earnings in the measured data that has actually been produced yet,” said the governor.
The pound dipped to $1.6986 during testimony, and ended the day down 0.24 per cent.
Expectations of a rate hike had pushed sterling up recently – the currency began the year at $1.66 and has gradually risen as an early-2015 rise began to look more likely.
Labour MP Pat McFadden said: “It strikes me the Bank is behaving a bit like an 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.”
Sam Hill, senior UK economist at RBC Capital Markets said: “The substance of the clues on what the current assessment is on the timing of the first hike was more dovish than would have been expected by those who interpreted the Mansion House speech as a direct signal on an early rate hike.”
During the speech this month, the governor said the UK’s first post-crisis rate hike “could happen sooner than markets currently expect,” hinting at a tightening of policy this year – the latest in a series of changes in his forecasts as the economic recovery has been stronger than the Bank expected.
There were also questions from the Treasury select committee about whether the speech had been Carney’s own thoughts, or possibly the views of the monetary policy committee (MPC).
Carney said that the speech was his own, but outgoing deputy governor Sir Charlie Bean added that all members of the MPC were “struck by the high degree of certainty” in markets that rates would not rise this year.
Treasury select committee chair Andrew Tyrie said yesterday: “MPC members will need greater clarity, in future, on whether their remarks, including those of the governor, are made in a personal capacity or on behalf of the MPC.”
There is additional spare capacity concentrated in the labour market that can be absorbed further before we would look to begin to normalise interest rates
MARK CARNEY, 24 JUNE
Since you came on the scene we’ve had… quite a lot of guidance governor, not all of it seeming to point in the same direction.
ANDREW TYRIE, 24 JUNE
There is additional spare capacity concentrated in the labour market that can be absorbed further before we would look to begin to normalise interest rates
MARK CARNEY, 24 JUNE
[A rate hike] could happen sooner than markets currently expect.
MARK CARNEY, 12 JUNE
We’ve had a signal that rates probably wouldn’t rise until 2016, we’ve then had a market expectation that rates will go up in 2015, now that may be an underestimation… The Bank’s behaving a bit like an unreliable boyfriend.
PAT MCFADDEN, 24 JUNE