It is more than three years since Bank of England governor Mark Carney was accused by Labour MP and Treasury Select Committee member Pat McFadden of behaving like ‘an unreliable boyfriend, one day hot, one day cold’ in his hints about forthcoming interest-rate rises. And it’s more than a decade since the last time the official UK bank rate actually moved upwards: the only shift since McFadden’s remark has been a cut from 0.5 per cent to 0.25 per cent in August last year. In fact there’s a palpable sense that the Bank, in common with other central banks, has all but lost the power to deploy interest rates as a monetary tool, having left them so low for so long.
So we wait to see whether this week’s round of rate-rise signals lead to action at the Monetary Policy Committee’s next meeting on 2 November, or fades into the new year. The flurry began when MPC member Gertjan Vlieghe, previously labelled as the panel’s ‘über dove’, said, ‘We are approaching the moment when the bank rate may need to rise’ in response to inflation close to 3 per cent and ‘a modest rise in wage pressure’. Carney echoed that view in a speech in Washington, cautiously adding ‘over the coming months’.
Their remarks pushed the pound above $1.35 (its post-referendum low was $1.20) and to €1.14 from an August low of €1.07 and tourist-rate parity. A stronger pound is itself anti-inflationary, since it reduces import prices; and if inflation thereby ticks down again, the urgency of a rate rise will begin to evaporate. Hence the Bank may be trying temporarily to deploy the exchange-rate tool, at the expense of UK exporters, in the hope of being able to leave the interest rate tool in the box. Why? Because there are also fears — expressed by Carney to the irritation of Brexiteers who still regard him as a mouthpiece of Project Fear — that Brexit uncertainty is contributing to a slowing of growth and business investment, which won’t be helped by higher rates.
Nor will the housing market, which is now in a doldrums of stagnant prices and low turnover.