(Reuters) - Bank of England Governor Mark Carney said he did not know when British interest rates should start to rise, once again sounding vaguer than before about when the BoE might begin easing the economy off record-low borrowing costs.
“The question in my mind is when is the appropriate time for interest rates to increase, and that is strongly consistent with the strength of the domestic economy,” Carney told members of parliament’s Treasury Select Committee on Tuesday.
The BoE surprised many investors earlier this month when it showed no sign that it was gearing up for an increase in interest rates, saying Britain’s near-zero inflation would pick up only slowly even if rates stay on hold throughout next year.
Carney said then that the Bank would raise rates when the time was right.
Before that, he had said a decision on whether to raise rates would come into sharper focus around the end of this year. But that was before the deepening of the slowdown in the global economy which has kept most BoE rate-setters on the fence.
The cautious tone of the BoE has contrasted with the clearer message from the Federal Reserve that a first US rate rise is likely to come next month.
Carney has struggled previously with his attempts to give a clear steer on when rates might go up. His guidance was first knocked off course by a surprise plunge in Britain’s unemployment rate and then by the slump in global oil prices.
Britain’s economy grew faster than any other big developed nation last year and will be among the top performers in 2015. But wage growth remains below pre-crisis levels and the latest inflation data showed prices fell in the 12 months to October.
Only one of the BoE’s nine monetary policymakers has voted for a rate hike in recent months.
Financial markets have been betting on a first BoE rate hike only in early 2017, although most economists expect the Bank to move well before then, probably in the first half of 2016.
In his comments to lawmakers on Tuesday, Carney showed he still expected borrowing costs to rise eventually, saying the economy would increasingly require a higher level of neutral rates as it recovered from the financial crisis.
“I do think that the real equilibrium interest rate in the United Kingdom has turned positive and as some of the headwinds … reduce. It will in most likelihood continue to rise,” he said.
But Carney also said productivity was more likely to exceed than undershoot the BoE’s latest forecasts, reducing the pressure on inflation, a view shared by relatively dovish Monetary Policy Committee member Gertjan Vlieghe.
Sterling fell earlier on Tuesday after the BoE’s chief economist Andy Haldane said he saw more downside risks to growth and inflation than reflected in the Bank’s latest economic outlook, and he reiterated his view that the BoE’s next move might be a rate cut.
“I see the balance of risks around UK GDP growth and inflation as skewed materially to the downside, more so than embodied in the November 2015 Inflation Report,” Haldane said in an annual statement to parliament’s Treasury Committee.
The only policymaker on Tuesday who sounded close to raising rates was Kristin Forbes, who restated her view that rates would need to rise “sooner rather than later” though labour market pressures were not yet strong enough.
