Carney swears next rate move will be upwards
The Governor made his pledge at a Bundesbank conference this afternoon in Frankfurt, quelling fears that rates could be moving down to zero this year.
Speaking at Imperial Business School earlier this morning, Deputy Governor Ben Broadbent also sought to play down fears over impending deflation, labelling such speculation “overblown”. Broadbent went on to say negative price growth in the UK would be transient, and have positive implications for consumers, and the wider economy.
“Low inflation is unlikely to go on for that long, and it won’t be negative for demand and output,” he said. “The fall in inflation has been driven by a steep fall in the real price of something we buy, not the declining value of what we sell.”
The comments made by the Governor and the Deputy follow controversial remarks made on Wednesday by BoE chief economist Andy Haldane, who broke ranks with the Bank’s official public position to argue that a rate cut may be unavoidable. As Your Money reported on Tuesday, inflation hit zero in February; some commentators, including Jason Hollands of Tilney Bestinvest, predict inflation would turn to deflation in March.
Other members of the BoE Monetary Policy Committee have also moved to distance themselves from Haldane’s statements. Nemat Shafik came out in support of the pronouncements of Carney and Broadbent, saying interest rates would be moving up before they moved down again, and attributing low inflation to influences beyond the control of the BoE. “The real drivers behind zero inflation are temporary and mainly external,” she said. “It is mainly about import prices and the sharp drop in the price of oil as well as the effects of sterling’s appreciation.”
Currency markets responded positively to Carney’s comments, with the pound rising by 0.1 per cent against the dollar to $1.4855.