Now isn’t the time to increase Base Rate, Bank of England governor, Mark Carney, has said today.
Speaking at Mansion House, Mr 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 [Base Rate] adjustment.”
Base Rate was cut to 0.25% last August from 0.5% – where it has been since March 2009.
At the most recent Monetary Policy Committee (MPC) earlier this month, three of the eight members voted in favour of increasing rates due to rising inflation, which hit a four-year year of 2.9% in May.
This consumer prices index (CPI) rate of inflation of 2.9% is well above the Bank of England’s inflation target of 2%.
Mr Carney acknowledged this difference of opinions in today’s speech. “Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank Rate increase,” he said.
Brexit impact to be taken into consideration
Mr Carney also warned that Brexit negotiations will have an impact on whether rates rise. He said: “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.
“During the negotiating period the economy will be importantly influenced by the
expectations of households, firms and financial markets about the nature of both the transition and the longer term economic relationships with the EU and other countries.
“Markets have already anticipated some of the adjustment. 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.
“Whatever happens, monetary policy will be set to return inflation sustainably to target while supporting as best it can the necessary adjustments in the economy.”
My Carney added that when Base Rate does rise, any changes will be “limited in scope and gradual in pace”.
Low savings rates are good for mortgage borrowers whose loans are linked to moves in the Base Rate, but bad news for savers who have been offered pitiful rates to save their cash in the last few years.