In comments on Tuesday, Bank of England Governor Carney stated that now was not the time to raise interest rates given the anaemic growth rate in wages together with mixed signals on consumer spending and business investment. Carney also stated that domestic inflationary pressure was still subdued.
Over the coming months, Carney wanted to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm and how the economy reacts to tighter financial conditions.
A key element would also be the developments surrounding expectations of households and companies during the Brexit negotiating process.
Overall, monetary policy would be set to return inflation sustainably to target over the medium term while supporting as best it can the necessary adjustments in the economy.
There were no significant warnings over the inflation outlook which will cause some concerns that net tolerance to higher inflation has increased within core bank members.
The Mansion House event planned for last week was delayed due to the fire in London and replaced by a breakfast event today.
The 5-3 vote for higher interest rates at last week’s Monetary Policy Committee (MPC) meeting sparked fresh speculation over an early move to increase interest rates. In these comments, Carney is clearly looking to dampen these expectations, although he could of course be out-voted on the committee.
The composition of the MPC will change as Forbes will leave the committee at the end of June to be replaced by Tenreyro with no clear evidence whether she will adopt a hawkish or dovish stance, although there are suspicions of a more dovish tone, especially given concerns surrounding Brexit.
Sterling spiked lower following the comments with GBP/USD sliding to below 1.2700 to the 1.2670 area while EUR/GBP hit the 0.8800 area.
Gilts rallied on the comments with gains of over 30 ticks on the session.