Mark Carney has distanced himself from the three hawkish Monetary Policy Committee (MPC) members who voted to raise interest rates from 0.25% to 0.5% last week by insisting that it is the wrong time for a rate hike.
Carney’s comments come just a week after UK inflation rate jumped to 2.9%, well over the Bank’s 2% target, and much faster than wages.
His warning that ‘now is not the time’ to tighten rates should hardly be a surprise given his record of favouring looser monetary policy.
However, inflationary pressure could still force the Bank’s hand.
In his Mansion House speech, Carney said: “From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment.
“In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations.”
Carney concluded his speech by questioning whether Brexit will be a cakewalk – a mischievous nod to Brexiteers who argued that Britain can ‘have its cake and eat it’ after it leaves the EU.
The governor said the success, or otherwise, of Brexit depends on whether the two sides can agree a ‘transition’ arrangement.
He added: “Depending on whether and when any transition arrangement can be agreed, firms on either side of the channel may soon need to activate contingency plans.
“Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption.”
Andrew Turner, chief executive of Commercial Trust, believes that a rise would be damaging for the UK. He says: “At a time when the economy is fragile, the government is weak and there is a wealth of uncertainty over Brexit, I question why the MPC would increase interest rates, which would only cause further problems in moving towards any semblance of financial stability for the country.
“For landlords an interest rate rise would place more pressure on their business model and would reduce the amount available for them to borrow via a buy-to-let mortgage.”
The pound has fallen to $1.2675, a one-week low, down from $1.275 before Carney’s speech hit the wires.