Carney sticks to his guns on rates

Despite stronger British jobs data, with unemployment at its lowest levels since 2009, the Bank of England downplayed growing speculation that it was planning a hike in interest rates early next year, or even before Christmas.

Instead, it released data on projected interest rates in its latest inflation report, which heavily implied there would be no change until the second quarter of 2015.

However, Mark Carney emphasised in his press conference that rising business investment showed the recovery was picking up pace. The BoE also upgraded its growth forecast for 2015 to 2.9% (from 2.7%). This year’s forecast was unchanged.

What the commentators said

The employment numbers look increasingly robust, said Alan Tovey in The Daily Telegraph: “jobs growth between January and March rose to a 43-year high.” As a result, “the number of people in work rose to 30.43 million – a record high”.

During the same three-month period, unemployment “fell by 133,000”. One of the key reasons behind this was the growth in self-employment, with almost one in seven people working for themselves, “the highest level since records began in 1971”.

However, other commentators felt that the picture was not as bright as employment alone suggested. “Real wage growth is back, but it’s weaker than we’d expected,” said Peter Spence in City AM.

Yes, total wages rose by 1.7%, slightly higher than the inflation rate of 1.6% – but when bonuses are excluded, the rate of wage increase falls to 1.3%, which “is still lower than headline inflation and less than the 1.4% increase reported last month”. This means that for most people wages are still falling in real terms.

The overall tone of the report and the press conference were “dovish”, said Samuel Tombs of Capital Economics. Indeed, the monetary policy committee thinks “the amount of spare capacity in the economy has only reduced slightly since February’s Inflation Report”.

Carney also emphasised that “monetary policy was not the right tool to use to cool the housing market”, reducing the chances of the central bank being pushed into a rate rise simply to try to cool house price inflation.

As a result, Capital Economics expects interest rates to stay “on hold until the second half of next year, later than the market and most economists expect”.

Merryn

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