Now is not the time to raise interest rates – Mark Carney

In the turn of the year speech today Mark Carney, the Governor of the Bank of England, said “last summer I said that the decision as to when to start raising Bank Rate would likely come into sharper relief around the turn of this year.”

“Well the year has turned, and, in my view, the decision proved straightforward now is not yet the time to raise interest rates.  This wasn’t a surprise to market participants or the wider public.  They observed the renewed collapse in oil prices, the volatility in China, and the moderation in growth and wages here at home since the summer and rightly concluded that not enough cumulative progress had been made to warrant tightening monetary policy.”

“At present, the MPC is seeking to return inflation to the target in around two years and to keep it there in the absence of further shocks.  We don’t want an overshoot of inflation.”

“This two-year time horizon reflects the need to balance the strength of private domestic demand growth against the sustained headwinds from a weak world economy and ongoing fiscal consolidation. External factors including a strong exchange rate and subdued global price pressures can be expected to exert a persistent drag on UK inflation.”

Economic indicators released today support the pessimistic outlook with the Chinese economy only growing at 6.9%. This is the lowest growth figure for the global economic powerhouse for 25 years.

Oil has dropped to $27 a barrel caused by over supply due to a slow down in China and Europe.

The International Monetary Fund (IMF) reduced its forecast for global growth by 0.2% to 3.4% overall.

UK CPI inflation figures just release show an increase of only 0.2% in domestic prices. Although this is up from 0% it is a long way from the Bank of England’s Medium term (2-3years) target of 2%.

All of the above indicating we are a long way from needing to put the breaks on monetary policy and increasing interest rates.

Although this is obviously good news for Landlords concerned about an increase in mortgage rates a small rise in the bank base rate would at least indicate some future good news for the economy as a whole.

To see Mark Carney’s full speech click here