The governor of the Bank of England held his press conference after the release of the Monetary Policy Committee’s quarterly inflation report yesterday (Wednesday). As was detailed in the report and in the comments of Mr. Carney and his assistants at the presentation (we watched the live webcast on your behalf), inflation is much lower than the central bank would like and, according to them, is expected to go even lower.
While employment is rising, this is at the expense of a large number of people opting out of the workforce. This creates what the economists call slack in the British economy and the report estimates that it amounts, at present, to about 1% in terms of GDP. One percent of GDP in a developed economy like the UK is a lot.
The MPC is concerned about the global economy, and in particular the fate of the Eurozone, which represents a major trading partner for the UK. Similarly, tumbling commodity prices globally are a worry. All of this amounts to a rethink about when core interest rates in the UK will rise, and all commentators have put back their estimates for the timing of this as a result of yesterday’s report.
The pound Sterling responded accordingly, losing significantly in value against all of its major counterparts.
Governor Carney most unambiguous yet
The governor of the Bank of England has come in for some criticism for what some perceive to be mixed messages, about interest rate rises in particular. Our own belief is that in the past he made an honest effort to be as accurate as possible in the “forward guidance” he decided to provide (is this a tautology? Can “guidance” be anything other than “forward”?). However, just like the rest of us, it was very quickly brought home to him that no one, not even a central banker, can foretell the future.
At yesterday’s presentation he looked like a man on top of his game. The body language was good. He seems to have arrived at the view that whatever is to be done in monetary policy terms with regard to the UK is now a long-term proposition, and he and his colleagues can afford to relax and devote the time needed for it to be dealt with properly.