The Governor of the Bank of England Mark Carney suggested on Tuesday that it is unlikely that the representatives of the central bank soon to raise interest rates in the UK, citing weaker than expected inflation and the slowdown of the global economy, reports the Wall Street Journal.
In a statement in London Carney said that the British economy is not yet ready to raise borrowing costs given recent disappointing data on growth and weak domestic price pressures.
Annual inflation averaged at around zero in 2015, said the country’s statistical office on Tuesday, the weakest annual average since the beginning of records in 1959
“It is obvious from last summer that progress is insufficient to ensure tightening of monetary policy. The world is weak and growth in the UK is slowing, “said Carney to students at Queen Mary University in London. He added that the central bank now expects “slightly lower” inflation in 2016 compared with previous forecasts, a sign that it is unlikely to raise interest rates this year.
Monday to investor doubts that Bank of England will raise interest rates before the end of 2017 or even the beginning of 2018, according to interest rate derivatives that track the base rate.
Carney’s comments come at a time when major central banks around the world have increasingly different courses amid changes in the global economy.
In China and Europe, central banks aggressively ease policy, trying to support growth. In the US, the Federal Reserve raised short-term interest rates in December after better data on growth and unemployment.
Tuesday Carney draw attention to a few differences between the US and the UK to justify the different positions of the two central banks.
He said that price pressure is lower in the UK than in the US and that the island is exposed to global trends in inflation. He also said that fiscal policy in the UK will press down more than growth in the US in the coming years, Finance Minister George Osborne plans to end Britain’s budget deficit by 2020
Carney described the three indicators that will be critical to the prospects for UK monetary policy. Officials want to see sustained economic growth over recent norms, growth in domestic spending, mainly wages and strengthening the “basic” inflationary pressures, which excludes volatile prices such as energy and food.
“We need to see cumulative progress in these three areas to have reasonable confidence that inflation is on track to reach the goal,” he said. Inflation target of the Bank of England is at 2%.
He added that rising interest rates when it begins, is likely to be gradual and limited, and that future decisions on when to be raised borrowing costs will depend on economic developments.