Mark Carney. Image via Bank of England
The Bank of England Governor, Mark Carney spoke to reporters on Tuesday last week, where he said that it was not the right time to raise interest rates. He said that weak wage growth and inflationary pressures suggested that rates will remain for a period of time.
Despite the dovish comments from the BoE Governor, just a day later, the central bank’s chief economist, Andrew Haldane spoke expressing his hawkish views. He said that the central bank should begin tightening policy as early as the second half of the year.
The conflicting views continue to add to the uncertainty in the British pound which is hit by the Brexit negotiations, the political landscape, and the central bank’s divided views.
Dovish Carney speech just a week after BoE meeting
Speaking at Mansion House, the BoE Governor’s comes just a week after the Bank of England voted to keep interest rates unchanged at 0.25%. However, the monetary policy committee was divided on rate hikes. Interest rates were kept steady at 0.25% on a 5 – 3 vote. There were no changes made to the central bank’s asset purchase program, which remained unchanged at 435 billion British pounds.
Carney said that the mixed signals on consumer spending and business investment alongside subdued domestic inflation and anemic wage growth were the reasons to keep interest rates steady.
Inflation in the UK continues to outpace wages. In May, consumer prices accelerated 2.9%, whereas wages rose just 2.1%. This was slower than the month before which was also revised lower from 2.4% to 2.3%. Over the last two months, the pace of wage growth is seen falling.
The British pound weakened after the BoE Governor’s comments. Further downside in the GBPUSD is expected amid a host of other factors, including the Brexit negotiations that have started with the EU. With both the economies showing a stark divergence, the outlook is negative for the British pound.
Read more: https://www.orbex.com/blog/2017/06/uncertainty-british-pound/