It looks like Mark Carney is stepping down as governor of the Bank of England without a final blast of fireworks.
The Bank’s Monetary Policy Committee (MPC) met this week to make its January decision on interest rates. It was Carney’s last meeting as governor. At noon, he announced the latest verdict: the MPC voted by seven votes to two, to keep the UK’s key interest rate where it is, at 0.75%.That’s quite a big deal market-wise. As Ruth Gregory of Capital Economics points out, just a few weeks ago, financial markets were convinced (or at least had the odds at 70%) that there would be a rate cut.
In the wake of the decision to keep rates on hold, sterling bounced somewhat (when monetary policy is tighter than markets expect, it’s usually good news for that country's currency, all else being equal). That’s not to say that the MPC feels relaxed about the economy, or that it expects growth to improve rapidly. Indeed, the Bank’s forecasts for growth and inflation have deteriorated since last time.
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So the possibility of a future rate cut is still live, while any potential for tightening still feels a long way off in the distance. The current decision to hold is very much data-dependent. Solid business survey data for January appears to have stayed the MPC’s hand.
But the Bank is ready to act “should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak." However, for now at least, it appears that Carney is going out with a whimper, rather than a bang.
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