Carney’s New Neutral Seen as Meaning No BOE Rate Move Until 2019

  • Economists no longer expect loosening as inflation accelerates
  • Officials to stay on hold until near the end of Carney’s term

Mark Carney’s new neutral means no change in interest rates for at least two years.

That’s according to the latest Bloomberg survey, which shows economists have dropped their call that the Bank of England would soon cut the key interest rate for a second time following the Brexit vote. Officials shifted their guidance last week to say policy could head in either direction next after the weaker pound starting fanning inflation.

BOE policy makers, led by Governor Carney, unleashed a multi-pronged stimulus package following the shock decision to leave the European Union in June as they prioritized supporting growth. Recent data has tilted the balance toward containing cost increases as the bank and economists see inflation breaching the 2 percent target next year.

“The debate is now back to whether they raise or not,” said Alan Clarke, an economist at Scotiabank in London. “The door is still ajar to a rate cut if the data is sufficiently weak. But on the monetary policy front, I don’t think Mark Carney hasn’t got an awful lot of action to look forward to over the next two and half years.”

Bloomberg’s survey, conducted from Nov. 4-11, found the median forecast of economists is for the BOE’s main rate to stay at 0.25 percent until at least the first quarter of 2019, just months before Carney is due to stand down as governor. That compares with a survey published on Oct. 18, in which the median forecast had been for a cut to 0.1 percent at last week’s meeting, and it staying there until at least early 2019.

‘Neutral Bias’

In October, a majority of policy makers expected another loosening this year following August’s stimulus measures. Officials dropped that language last week when they announced no change in their stance and said they now have a “neutral bias” going forward.

While that prompted some economists to push back expectations for another rate reduction to February, 12 out of 20 economists in a one-off Bloomberg survey published Friday said the next move is up. That survey was conducted from Nov. 8-11.

Bloomberg’s monthly questionnaire also found respondents expecting faster inflation over the next two years compared with last month, with price-gains seen at average 2.4 percent in both 2017 and 2018, above the BOE’s 2 percent target. The BOE sees inflation at 2.7 percent for the next two years, though Carney has said he can tolerate some overshoot.

Carney may give more details on his thinking when he answers lawmaker questions at a Parliamentary economic hearing in London on Tuesday. Carney may be asked about the impact of any change in the outlook caused by this week’s surprise election of Donald Trump as U.S. president, and the pound’s decline since the Brexit vote.

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