Andy Haldane, the Bank of England’s Chief Economist and member of the MPC spoke with a regional newspaper on Wednesday while touring North Wales and speaking with business.. He was quoted as saying to the Daily Post “We are in no rush to raise rates, the recovery is taking hold nicely, the last thing we want to do is knock the stuffing out of that.” Comments like this do confuse the market, with the current consensus for a Q1/2 2015.
He continued on to say “People might be fearful that we could go back to the sorts of levels we saw in the 80s or 90s which were four, five, six, seven per cent rates…We are clear that even when we are through this adjustment and rates are starting to rise we don’t really see rates getting back to those levels. Maybe the new normal for rates might be 2% or 3%, maybe 4%.”
This is a pretty clear hint that it could be some time before the bank begins to tighten monetary policy, and perhaps the market consensus is incorrect. Inflation has matched an all-time low (0.5%) at the latest release, the GDP estimate missed expectations and house price growth has begun to slow.
The Bank of England governor Mark Carney reiterated previous comments that the interest rate hikes in the UK would be more gradual than previously expected.
The UK’s main trading partner (the EU) has undertaken further QE, with concern that certain peripheral economies (Greece) could leave the currency union. These external factors are likely to be key parts for the decision formation for the MPC members. Raising rates would strengthen sterling further against the Euro, which would make exporters less competitive.
House price growth slows
One of the UK’s largest mortgage lenders Nationwide, released their House Price Index this morning; annual house price growth slowed to 6.8% in January from 7.2% in December. The housing bubble has been flagged repeatedly as a concern by analysts, and at times the caveat for a rate rise. The slowing of price growth, follows the new stricter mortgage requirements (MMR) which could ease the MPC members concerns.