Bank of England maintains rates as Carney bows out
LONDON The Bank of England kept interest rates steady at governor Mark Carney’s final policy meeting as it saw signs of a postelection pickup in growth that weakened the case for immediate action to help the lacklustre economy.
Financial markets had seen a 50-per-cent chance of a cut on Thursday, which would have echoed moves last year by the U.S. Federal Reserve and the European Central Bank.
But the Monetary Policy Committee (MPC) again split 7-2 in favour of keeping the Bank Rate at 0.75 per cent. Sterling jumped around half a cent against the dollar though interest rate futures still pointed to a rate cut, probably in May, after Andrew Bailey takes over.
Carney highlighted encouraging signs for the economy in early 2020, but said the BOE was waiting to see if this would be borne out in hard economic data. “To be clear, these are still early days, and it is less of a case of ‘so far so good’ than ‘so far, good enough’,” he said.
ING economist James Smith said the business surveys that have pointed to a recovery sometimes overstated upturns and downturns. “The lingering question of policy easing is unlikely to go away just yet. It all really hinges on whether the economy sees a Brexit bounce,” he said, adding that either way, Brexit uncertainty was likely to return later this year.
British Prime Minister Boris Johnson’s unexpectedly emphatic Dec. 12 election win has boosted optimism, particularly among businesses who had cut investment while Parliament failed to resolve the Brexit impasse.
But the BOE downgraded its longer-term view for the economy, saying border checks from 2021 would add to drags on growth, and it kept the door open to lower rates if the signs of a pickup prove illusory.
If growth does gather pace, “some modest tightening” of policy might be needed further ahead.
Asked if he had made any policy mistakes during his 6-1/2 years as governor, Carney said he had no regrets, and defended his trademark “forward guidance” on interest rates as essential for central bankers at turning points in the economy.
The BOE said Britain’s economy probably did not grow at all in late 2019, when Parliament forced a delay to Brexit and the snap election. That knocked the growth forecast for 2020 to just 0.8 per cent, the slowest since the financial crisis, although by the final quarter growth should be around 1.2 per cent, the BOE said.
Britain will leave the EU Friday, with an 11-month transition period to negotiate a deal with the EU.