Carney, asked by a reporter if he regretted saying a rate decision would become clearer around the turn of the year, said: “Absolutely not”.
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The British central bank’s tone contrasts with that of the U.S. Federal Reserve, whose chair, Janet Yellen, said on Wednesday that a USA rate rise was a prospect for December.
In the same way he gave “forward guidance” when he was governor of the Bank of Canada, Carney likes to signal when he might be about to move on rates to decrease market turmoil. United Kingdom interest rates have now remained on hold for six-and-a-half years.
‘The surprise was that no-one joined Ian McCafferty in voting for an immediate 0.25% rate rise, ‘ said James Knightley, economist at ING.
She continued that the market had not been expecting an interest rate rise until well into next year anyway, but with the strong pound and low commodity prices continuing to be features of the economy, Mark Carney is increasingly of the view that inflation will stay lower for longer.
The bank’s Monetary Policy Committee members believe that it was more likely than not that inflation would remain below 1 percent into the second half of 2016. In September, the 12-month inflation rate stood at minus 0.1 percent, around 2 percentage points below the inflation target, the bank said.
A year ago, markets were forecasting (with the bank’s blessing) that interest rates would be about 1% today.
The Bank is also set to edge down its United Kingdom growth outlook, following official data last week showing that growth eased back to 0.5% in the third quarter from 0.7% in the previous three months.
The decision came despite speculation among economists and the financial markets that a rate rise was possible.
The Bank, which also published its quarterly inflation forecast, downgraded its growth outlook slightly to around 2.7 per cent for 2015, down from 2.8 per cent, while also cutting it next year to 2.5 per cent from 2.7 per cent.
“The timing of the first and subsequent rate rises is therefore critical to market sentiment”.
Sterling fell more than a cent against the dollar and government bond yields dropped sharply.
The BoE’s Monetary Policy Committee voted eight-to-one to keep rates on hold and made no changes to its £375 billion asset-purchase program.
But robust surveys this week from the services, manufacturing and construction sectors suggests growth may pick up again in the fourth quarter.
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However, for the time being, the mood music in Threadneedle Street is that we will have yet another year’s worth of record low interest rates before borrowing starts getting more expensive, and savings start yielding a bigger return. For example, the BOE said a 3% fall in China’s gross domestic product would shave off 0.3% of the U.K.’s GDP.
