Mark Carney said it was a “straightforward” decision to hold the Bank base rate at 0.5% this month in the wake of China’s financial woes and the threat of global financial contagion.
The Bank of England Governor, who was speaking at Queen Mary University in London today, also brought up collapsing oil prices and a lack of inflation in explaining why holding the base rate was an easy move.
He refused to timetable when the first rate rise will happen but said it will depend on levels of economic growth, wage growth, productivity and core inflation.
Carney said: “Last summer I said that a decision as to when to start raising Bank rate would likely come into sharper relief around the turn of the year.
“Well, the year has turned and, in my view, the decision proved straightforward – now is not the time to raise interest rates.”
He added: “Further downside risks to the global outlook remain, reflecting the ongoing challenges in China, fragilities in other major emerging market economies, and the potential for financial contagion.
“It is clear to me that since last summer progress has been insufficient to warrant a tightening of monetary policy. The world is weaker and UK growth has slowed.
“Due to the oil price collapse, inflation has fallen further and will likely remain low for longer. It has always been the case that, because the economy is subject to unforeseen disturbances, the precise path for Bank rate rises cannot be pre-ordained.”
Carney wasn’t the only Monetary Policy Committee member to dismiss an imminent rate rise, as yesterday Dr Gertjan Vlieghe told an audience at the London School of Economics that the base rate could stay below its historical average for a “very long time”.
In his first speech since joining the MPC in September Vlieghe identified an increasingly indebted and aging population in addition to growing income inequality as risks to global economic growth.
He said: “Be prepared for the possibility that real interest rates will remain well below their historical average for a very long time, even with economic growth that is close to or only somewhat below its historical average,” he said.
“Policy rates, when they rise, may not need to rise by much over the coming years. These medium-term considerations make me relatively more patient before raising rates.”