- REUTERS/Phil Noble
The value of the pound is jumping on Wednesday afternoon after Bank of England Governor Mark Carney hinted that he could be close to voting for a hike in interest rates during a panel appearance.
“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional,” Britain’s most senior monetary policymaker said while speaking on a panel at the European Central Bank’s Forum on Central Banking in Sintra, Portugal.
As recently as last week, Carney, who is one of the more dovish members of the bank’s Monetary Policy Committee, said that he was not ready to vote for a rate hike, but on Wednesday he sought to clarify his position, effectively saying that he would be ready to vote for a rise in rates if business investment begins to rise offsetting weaker consumption in the process.
If and when he votes to increase rates “will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations,” Carney said
Carney’s comments were taken positively by the market, with investors buying heavily into the pound as the governor spoke. Sterling jumped by close to 1% during Carney’s speech, passing comfortably above 1.29 against the dollar.
The chart below shows how sterling looks as of 2.50 p.m. BST (9.50 a.m. ET):
Carney’s words on Wednesday further muddy the picture when it comes to the UK’s future interest path, with a growing divide emerging on the Monetary Policy Committee.
Several members of the bank’s rate-setting Monetary Policy Committee have spoken publicly in recent days, and it is very clear there is a big split in the thinking of the committee’s members.
That became even more clear earlier on Wednesday when Jon Cunliffe, who sits on the MPC as deputy governor for financial stability, made clear that he does not support a rate hike anytime soon, citing concerns about slowing consumer spending, which he believes currently trumps the surging inflation caused by the pound’s slump since the referendum – which has itself been a driver of slowing spending.
Carney’s comments appear to make things even more difficult to predict.