The Bank of England sees the margin of spare capacity at 1%. Rates will eventually rise gradually. Wage growth is expected to rise by only 1.25% instead of 2.50%. Unemployment can continue falling without inflationary pressures. There is a wide range of views about the degree of slack. There is no particular wage growth target. The guidance remains unchanged.
GBP/USD traded just under 1.68 before the publication. It is now falling to 1.6750. Here is the live blog of the event, with all the key headlines that pound the pound.
- Rates will rise gradually, but that’s not a promise. Path of bank rates are 2.25% by the end of the forecast period. There are headwinds facing the economy. Carney mentions the persistent strength of sterling and the deleveraging.
- Small, slow increases in interest rates will help mitigate the headwinds. Even if the slack would be erased, the headwinds, the rates would not jump. And even if the headwinds are gone, rates would stay lower for longer.
- Whether tomorrow’s normal rates of growth rises, it depends on productivity. MPC committed to keep low and expected inflation.
- Given the broad headwinds, the interest rates of tomorrow will be lower than those of yesteryear.
- Update: GBP/USD extends falls all the way to 1.6732 as Carney continues talking.
- There is labor supply shock. The price of labor has not been moving up. Businesses have substituted capital for labor.
- There is no structural break in the productivity and the BOE does see investment growth.
- Growth expectations for 2014 upgraded to 3.5% but there is more downside risk, due to geopolitics.
- Seeing very marginal signs of export growth.
- Question: will you get ahead of the curve on wage growth? Or will you wait? Answer: slack is used more rapidly, but the basis has been downgraded and there is a wide range of views.
- Given the degree of slack, weakness of wages, the adjustment will be slow.
- GBP/USD extends falls below 1.6720.
- Now is not a time for a rate increase.
- Interest rates are very relevant for businesses.
- Guidance is quite useful.
- The judgments about when to raise rates depends on wages as well.
- Earlier, the UK reported a drop of 0.2% in wages in June.
- There are contrasting signals from the labor market: more jobs but no higher wages.
- According to our survey, a majority of households would find difficulties on a 2% rate hike without wage rises.
- The lack of wage growth is one of the reasons to raise rates gradually, once they begin.
- The introduction of the MMR rules has slowed down activity in the housing market.
- Productivity growth has been weaker than expected.
- We have lowered our expectations regarding building approvals.
- Carney: there is too much focus on the timing of the first rate rise.
- GBP/USD stabilizes at 1.6730.
- The moves are data dependent.
- Carney didn’t really answer if rate hikes will be smaller than 0.25%.
- On Scotland, Carney doesn’t say anything sensitive.
- British reporters are quite tough with Carney and his colleagues.
- Carney refuses to accept that the term “clueless†and prefers “uncertaintyâ€.
- Unlike in some other advanced economies, there has been a higher attachment to the work force. Still a high rate of involuntary part time employment.
- High uncertainty about productivity growth.
- GBP/USD resumes its falls and slips under 1.6730.
- About the sustainability of growth: so far, growth has been relatively broad based. There is a pickup in investment. There was some contribution from the external side.
- If there is one big issue about the sustainability, it is about productivity growth.
- Carney confronted with the Mansion House speech: market reactions to data have been more consistent with reactions seen before the crisis.
- On Scottish independence, the BOE will act with responsibility. We have contingency plans. Not good to talk about contingency plans in public, just to say we have them.
- Also the Treasury has contingency plans.
- Rate rises will come and will be gradual. Cannot comment on timing.
- BOE will not sell bonds until a material interest rate comes.
- GBP/USD reaches new lows at 1.6715. EUR/GBP nearly at 0.80.
- Is the housing market the greatest risk to the UK economy?
- Question about self employed: 14% of the labor force. Self employed don’t differ much from the greater job market. Small businesses should generate more productivity.
- Question about the timing of the timing of the rate hike. Carney does not give an answer.
- There is more momentum in the economy than we had expected. The momentum of the economy is more assured.
- We take a judgment about rates every month.
- Question about the ECB: it’s going to take some time for the TLTRO to have effect.
- The implications of slow EZ growth are that the UK cannot rely on growth from the zone for our recovery.
- Press conference ends.
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