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Bank of England's Mark Carney says he has Theresa May's full support – business live UK households face squeeze as Bank of England hikes inflation forecasts – business live
(35 minutes later)
2.37pm GMT
14:37
Howard Archer, economist at IHS Markit, is now forecasting UK interest rates to stay at 0.25% for some time. He also expects growth to be slower than the Bank is predicting but inflation to be higher:
We are dropping our expectation that interest rates will be taken down to a low of 0.10%
We now believe that it is more likely than not interest rates will stay at 0.25% for a prolonged period (very possibly to 2020). Ahead of the November MPC meeting and Quarterly Inflation Report, we had considered it most likely that interest rates would be taken down to 0.10% but not until the second quarter of 2018 when we expected economic activity to be increasingly pressurised by Brexit uncertainty (following the anticipated triggering of Article 50) and diminishing fundamentals for consumers.
We are actually more pessimistic than the Bank of England on growth but see inflation higher. Specifically, we forecast GDP growth to slow from 2.1% in 2016 to 1.1% in 2017, then improve only gradually to 1.3% in 2018 and 1.5% in 2019. We see consumer price inflation moving above3% in late-2017 and peaking around 3.5% around spring 2018.
It is also notable that Mr. Carney observed that the UK has an outstanding framework for monetary policy, which works well and does not need to be adjusted. This follows recent comments by politicians that could be construed to threaten the Bank of England’s independence as well as some attacks on Mr. Carney and the MPC – particularly on their stance on the risks from Brexit.
2.34pm GMT
14:34
The TUC is also worried that households face a severe wage squeeze next year, as the weaker pound drives up inflation.
TUC General Secretary Frances O’Grady fears Britain can’t afford a second dose of falling real wages (as seems possible, if companies don’t provide inflation-busting pay rises).
O’Grady says:
“The Bank’s warning must spur the government into action so that workers don’t pay the price of Brexit with a squeeze on wages.
“UK workers already suffered the largest fall in real wages after the financial crisis of any developed country except Greece – they can’t afford another hit to their pay packets.
“The Chancellor should use the Autumn Statement to protect jobs and wages, with new investment in infrastructure like roads, rail, green energy and homes. And the national minimum wage must be increased to keep it well ahead of inflation.”
And here’s a reminder of the BoE’s new ‘fan chart’, showing how it expects inflation to romp upwards in 2017 and 2018.
2.25pm GMT
14:25
Ian Kernohan, Economist at Royal London Asset Management, agrees with Mark Carney that households are going to find life tougher next year, as Brexit uncertainty continues to swirl.
He says:
GDP growth is likely to slow next year, on the back of a squeeze in real household incomes and ongoing Brexit uncertainty.”
2.22pm GMT
14:22
If you’re just tuning in, here’s Katie Allen’s news story about how UK interest rates were left on hold today:
2.17pm GMT
14:17
Mark Carney's press conference: six things we learned
As suspected, Mark Carney faced some robust questioning at today’s Quarterly Inflation report.
The governor found himself having to defend the Bank’s forecasting powers, after it almost doubled its forecast for 2017 growth (to 1.4%), just three months after slashing it drastically.
He also repeatedly fended off questions about his own future, and whether he could possibly be lured to stay beyond June 2019. Personally I can’t believe he’d reject the chance for more meetings with the UK economics press pack.
But what did we learn?
1) Life is going to get tougher, especially for poorer families.
Carney warned that inflation will take a real bite out of earnings, saying:
We see very modest real income growth over the course of next year and into 2018.”
That’s because the CPI rate is expected to surge to 2.7% in 2017, and hit 2.8% in 2018 -- which is higher than wage growth today.
And he said the Bank is facing a balancing act between allowing inflation to rise over target (driving down real wages) and higher unemployment (which would happen if the Bank tightened monetary policy).
2) The economy is doing better than the Bank expected....
Alongside death and taxes, you can be pretty certain that the Bank of England’s economic forecasts will be tweaked before long.
But still, today’s upward revisions to growth in 2016 and 2017 are quite significant - and show that the BoE was too gloomy about the immediate impact of voting to leave the EU.
Carney painted a picture of serene calm:
The MPC had expected consumption to continue to grow solidly throughout the remainder of 2016. But consumption has been even stronger, with households appearing to entirely look through Brexit-related uncertainties.
For households, the signs of an economic slowdown are notable by their absence. Perceptions of job security remain strong. Wages are growing at around the same modest pace as at the start of the year. Credit is available and competitive. Confidence is solid.
Indeed, he had to pour cold water on the suggestion that consumers are being stupid by still hitting the high street.
3)....but there are signs that things are getting worse
The Bank still sees signs that firms are cutting back, as they watch Brexit play out:
That uncertainty does bear down on business investment,that effect builds with time, that lower business investment has consequences for employment.
4) We should get used to Brexit uncertainty
The governor said that today’s court ruling that MPs must vote on article 50 is simply an example of the drama we should get used to, as Britain leaves the EU.
Obviously I am not qualified to comment on the court judgment or the prospects here, but it is an example of the uncertainty that will characterise this process. “The negotiations haven’t even yet begun, there will be uncertainty, there will be volatility around those negotiations as they proceed, and I would view this as one example of that uncertainty.”
5) The next interest rate move could be up.
Britain’s primary schools are full of children who weren’t even born when the Bank last raised interest rates (it was July 2007, just before the credit crunch). And a few months ago, many City economists were convinced rates would fall to 0.1% soon.
Not any more, with the BoE dropping its guidance that the next move is probably down.
As Carney puts it:
You can envisage scenarios where it goes either way. We don’t have a bias in terms of direction of where the next move will be. Again, in a period of a fair bit of uncertainty you can envisage scenarios where either direction would be merited.
6) The Bank of England isn’t at war with Downing Street.
Asked about Theresa May’s criticism of monetary policy, he argued:
“We don’t feel under any pressure from the government,certainly none from the prime minister.
I think the prime minister fully supports, and the government fully supports, the monetary policy framework we have in place and in that framework we take those decisions.”
And he also indicated he accepted criticism from MPs, as part of the Bank’s accountability. He wouldn’t say whether some critics should take a vow of silence, alas.
Updated
at 2.20pm GMT
1.30pm GMT1.30pm GMT
13:3013:30
A final question.... is there an inflation level that would force the Bank to take action?A final question.... is there an inflation level that would force the Bank to take action?
Carney won’t be lured into setting a figure -- perhaps burned by his previous experience of forward guidance.Carney won’t be lured into setting a figure -- perhaps burned by his previous experience of forward guidance.
It all depends what is causing prices to rise over target, and what the best response is.It all depends what is causing prices to rise over target, and what the best response is.
Carney: Won't give a numerical limit we will tolerate on inflation. Any limit is a product of what's causing inflation overshoot.Carney: Won't give a numerical limit we will tolerate on inflation. Any limit is a product of what's causing inflation overshoot.
#Carney refuses to give a figure which is a beyond tolerable level of inflation; says it depends on what reasons behind the overshoot are#Carney refuses to give a figure which is a beyond tolerable level of inflation; says it depends on what reasons behind the overshoot are
1.26pm GMT1.26pm GMT
13:2613:26
Carney: Consumers aren't being stupidCarney: Consumers aren't being stupid
Q: Are consumers being short-sighted and stupid by still spending, and not realising how difficult things are going to get?Q: Are consumers being short-sighted and stupid by still spending, and not realising how difficult things are going to get?
Not at all - people still have jobs, and are behaving rationally, Mark Carney replies.Not at all - people still have jobs, and are behaving rationally, Mark Carney replies.
1.24pm GMT1.24pm GMT
13:2413:24
Carney: “We don’t feel under any political pressure from the govt. PM & govt fully support monetary policy framework we have in place.”Carney: “We don’t feel under any political pressure from the govt. PM & govt fully support monetary policy framework we have in place.”
1.21pm GMT1.21pm GMT
13:2113:21
Carney: I've got Theresa May's full supportCarney: I've got Theresa May's full support
Carney is then asked whether Theresa May’s recent criticism of the Bank’s monetary policy, at the Tory party conference, has undermined him.Carney is then asked whether Theresa May’s recent criticism of the Bank’s monetary policy, at the Tory party conference, has undermined him.
Q: Does he feel any political pressure to change the bank’s forecasts?Q: Does he feel any political pressure to change the bank’s forecasts?
Not at all, he replies.Not at all, he replies.
We don’t feel under any pressure from the government, and especially not from the prime minister.We don’t feel under any pressure from the government, and especially not from the prime minister.
The prime minister, and the government, fully support the monetary policy framework we have in place.The prime minister, and the government, fully support the monetary policy framework we have in place.
UpdatedUpdated
at 1.34pm GMTat 1.34pm GMT
1.16pm GMT1.16pm GMT
13:1613:16
Hugo Duncan of the Daily Mail tries to get some new forward guidance out of the governor.Hugo Duncan of the Daily Mail tries to get some new forward guidance out of the governor.
Q: Can you tell us whether the next move in interest rates is more likely to be up, or down?Q: Can you tell us whether the next move in interest rates is more likely to be up, or down?
You can see scenarios where it goes either way, we don’t have a bias, Mark Carney replies.You can see scenarios where it goes either way, we don’t have a bias, Mark Carney replies.
But the monetary policy committee currently unanimously believes that the present stance is right.But the monetary policy committee currently unanimously believes that the present stance is right.
UpdatedUpdated
at 1.20pm GMTat 1.20pm GMT
1.16pm GMT
13:16
1.14pm GMT
13:14
Q: If the Brexit process isn’t completed by 2019, might you stay on longer?
Carney repeats that we’ve had enough talk about his future.
And he then warns that today’s court ruling on article 50 is just one example of the “series of events” that will take place as Britain leaves the EU, creating uncertainty.
Everything doesn’t come together until relatively late in the process, and those effects will be there in the economy.
1.14pm GMT
13:14
Q: Should families who are just getting by be worried about your inflation forecasts [hitting 2.7% in 2017]?
We expect inflation to go up, Carney states bluntly, and that will hit people in the pocket.
But he then flags up that the Bank expects wage growth to be stronger by 2020.
There’s a difficult period here, but it has to be put into context.
Carney: expect inflation to rise. must make judgment on how fast get it back to target at time when econ abt to undergo big transition
1.09pm GMT
13:09
Q: How much would the pound have to fall, and how fast, to concern you - and would you intervene in the currency markets?
Carney says the BoE doesn’t target the sterling exchange rate, but it isn’t ‘indifferent’ to it.
1.06pm GMT
13:06
Ben Chu of the Independent takes the governor back to the recent criticism from pro-Brexit MPs, and the claim from former foreign secretary William Hague that central bankers had lost the plot.
Q: Is this undermining Bank independence, and should your critics take a vow of silence?
Carney grins, and slips into Canadian as he mutters “Jeez, It’s a trap”.
He then says there is a robust mechanism of accountability, including regular appearances before parliamentary committees.
The debate should be as ‘vigorous’ as necessary. And it’s important that the MPC recognises the limits of its responsibilities, he adds.
Carney asked if sniping at governor by MPs undermines independence of central bank. Under his breath says "Jeez, it's a trap"
Debate about what Bank does "can be as vigorous as people want" says Mark Carney - seems unbothered by Bexiteer critics
Updated
at 1.08pm GMT
1.01pm GMT
13:01
Q: Three months ago the Bank made major downward revisions to its growth forecasts, and today it’s made major upward revisions. So is there a problem with your forecasting?
Carney argues that we shouldn’t get carried away with short-term revisions.
Broadly speaking, the size of the UK economy is still expected to be roughly the same in two or three years as we thought in August.
Basically, Carney is saying the BoE has learnt from the past three months that it was right all along.
Deputy governor Ben Broadbent weighs in too, saying that most independent forecasters expected the economy would contract after the Brexit vote. That was more negative (and thus wronger) than the Bank’s own forecasts.
12.56pm GMT
12:56
Carney won't discuss staying beyond 2019
Q: Could you be persuaded to stay at the Bank of England beyond 2019, if things are going well?
I think we’ve all had enough of that saga, Carney shoots back, in an attempt to keep talk of his future nailed down [reminder, on Monday he agreed to serve one more year, until June 2019]
Carney asked about his future, and could you stay an extra 2 years: "I think we have all had enough of that saga so let's not reopen it"
Q: Does the recent news storm over your future show that the relationship between the government and the Bank needs to change?
Carney argues that the current system, in which the government hands control of monetary policy to technocrats such as himself, is working.
“I don’t think the framework needs to change, i think it works quite well”
Mark Carney praises macro framework of the Bank of England and the "clear designation" of responsibility to technocrats...
12.53pm GMT
12:53
Q: UK bond yields are up sharply since your stimulus package in August, so has it failed - and has monetary policy shot its bolt?
No, Carney replies. He argues that the Bank could still buy more British gilts if needed.
12.51pm GMT
12:51
Carney denies that the Bank has got ahead of itself and been “presumptuous” by trying to predict the kind of Brexit deal that Britain will end up with.
Carney on what kind of Brexit UK will get: negotiations not begun and "it's all to play for"
@bankofengland Carney says made no change to hard/soft Brexit assumptions but hit to supply comes through harder later.
Updated
at 12.53pm GMT
12.50pm GMT
12:50
Q: The bank has cut its growth forecasts for 2018, so is the pain of Brexit simply being delayed?
Carney replies that the Bank sees “very modest real income growth” in 2017 and 2018, as inflation eats into wages.