Bank of England Governor Mark Carney said yesterday he had no set timetable for raising interest rates and avoided giving his trademark steer on what was likely to happen to borrowing costs against a volatile global economic backdrop.
Carney, making his first speech of 2016 as growth hit a quarter-century low in China while wages rise more slowly at home, said he would only commit to keeping the bank focused on its inflation target.
“That means we’ll do the right thing, at the right time, on rates,” he said.
Britain’s economy has grown strongly over the past two years and last summer Carney said a decision on when to start raising interest rates would probably become clear by about now.
But over the past six months the mood at the BoE has become markedly more cautious and plunging oil prices have kept inflation close to zero, way below the Bank’s 2% target.
“The year has turned, and, in my view, the decision proved straightforward — now is not yet the time to raise interest rates,” Carney said, referring to his forecast of July.
Investors expect no hike until 2017 while economists think one will happen in the second half of this year.
Shortly after taking over the BoE nearly three years ago, Carney gave a specific milestone — a fall in Britain’s unemployment rate below 7% — that might swing his thinking towards moving on rates, part of his efforts to make bank policy more transparent.
But unemployment took only a few months to hit that level rather than the three years the BoE had forecast, and far too soon for the Bank to consider a rate hike.  Then, in 2014, he said rates could go up sooner than markets expected, only for oil prices to start their slide, generating global fears about deflation and tying the BoE’s hands.
Yesterday, he mentioned three factors he would be looking for but avoided giving any specific threshold levels.
Britain’s economy would need to grow faster than average for a move on rates, he said, in contrast to signs that growth slowed to below its long-run average in the second half of 2015.
Second, underlying price pressures — chiefly wage growth — would need to pick up, and third, core inflation would need to be “moving notably towards the target”.
British inflation data yesterday showed prices were flat in 2015, the lowest reading since comparable records began in 1950.
Core inflation — which strips out most of the effect of the past year’s slump in oil prices — rose more than expected however to 1.4% in December. This was its highest since January 2015, though still well below the BoE’s 2% target for headline inflation.
“The journey to monetary policy normalisation is still young,” he told an audience of students at the University of London. “(It) doesn’t have a set timetable, only an expected direction of travel.”
Earlier yesterday, the International Monetary Fund’s chief economist said he expected the BoE to wait for strong evidence of faster wage growth before raising rates.
Only one of the BoE’s nine policymakers has voted for a rate hike in recent months. On Monday, Gertjan Vlieghe, its newest rate-setter, said he might vote for a cut if bad news piled up.
Carney said British demand would probably remain strong but China and other emerging economies posed risks.
British wage growth has also been weaker than he expected — and below the 3% level Carney had previously identified as propitious for a rate hike.
Yesterday he said the level of unemployment which would trigger higher inflation might be lower than the BoE’s current 5% estimate. The BoE would also be vigilant for signs that low inflation was getting entrenched through less generous wage deals.