Bank of England governor Mark Carney signalled a dovish tone while speaking to MPs yesterday, despite insisting that the UK’s monetary policy will not be loosened even further.
Carney told the Treasury Select Committee that Britain was “still an economy that requires monetary stimulus”, despite an expected growth rate of above three per cent this year. The yield on UK 10-year gilts fell 1.86 per cent during the day, closing near two per cent.
However, while acknowledging threats to the UK economy from the Eurozone, Carney dismissed any prospect of the Bank delivering even stronger stimulus in the near future. “The [Bank’s] next move in policy is going to be an increase,” he said.
Carney also said he may have to write an open letter to chancellor George Osborne, which the Bank governor is required to do whenever inflation moves above three or below one per cent annually.
Fellow monetary policy committee member Kristin Forbes also expressed her belief that inflation would continue to undershoot the Bank’s two per cent target.
“Currently measures of domestically generated inflation are also low, and that should continue to keep inflation contained for now,” Forbes said. She added that external factors were playing a significant role in keeping inflation down. However, she said the deflation was unlikely.
Forbes’ colleague Sir Jon Cunliffe joined the group of doves. “With interest rates already at their effective lower bound and inflation below target, I am more worried about risk of inflation surprising again on the downside than that of an unexpected emergence of inflationary pressure,” he said. Ian McCafferty departed from the consensus, reiterating the view that has led him to vote for a rate hike in recent meetings. “The current inflation undershoot does not, in my view, negate the need for a modest rise in interest rates,”McCafferty said.
Julian Harris, Chris Papadopoullos