Daily Mail

Is another rate U-turn on the cards?

- by Hugo Duncan

MARK Carney could be forced into yet another U-turn on interest rates as prices rise at a slower rate than feared.

The governor of the Bank of England has hinted it may raise rates on August 2 – two weeks today – as it battles to bring inflation under control.

But official figures yesterday showed inflation held steady at 2.4pc in June, confoundin­g prediction­s it would rise to 2.6pc.

That could persuade the Bank to leave rates unchanged at 0.5pc, rather than raise them 0.75pc as has been widely predicted. In the past, Carney, 53, has been likened to an unreliable boyfriend for blowing hot and cold over the outlook for interest rates.

The pound fell yesterday on the back of the inflation figures as investors bet the Bank could again delay a rate rise. Sterling fell 0.5pc against the dollar in four minutes after the data was published, reaching a low of $1.3011, its weakest level for ten months.

Balraj Sroya, a trader at currency firm Foenix Partners, said: ‘The pound plunged as the likelihood of an August rate hike falters. Chances of a hike in August stood at over 80pc earlier this week, but with inflation holding steady it could cause the unreliable boyfriend and the Bank to push back once again.’

The Bank had been expected to hike rates in May, having raised them from 0.25pc to 0.5pc in November – the first rise in borrowing costs for over a decade.

But after a weak start to the year for the economy, when the blizzards swept in by the Beast from the East disrupted business, it held rates at 0.5pc. This month Carney said he had ‘greater confidence’ that the slow start to the year was due to poor weather, paving the way for a rate rise in August as the economy picks up.

But another U-turn may be on the cards, with critics saying that the Bank’s credibilit­y is under threat.

Craig Erlam, senior market analyst at trading firm Oanda, said: ‘If it holds off again in two weeks, despite the bounce-back in the economy, people will seriously question whether any attention at all should be paid to the central bank’s guidance.’

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