The Bank of England (BoE) has hinted at another delay in raising interest rates, despite two months after claiming the central bank would start hiking rates beginning in spring. The BoE cited lower inflation levels for Great Britain, a trend that will continue for another three years.
According to BoE Governor Mark Carney, British inflation will fall below one percent within the next six months and predicted a very slow uptick in inflation between now and 2017. Carney lauded markets for being right to rule out a rate hike – markets have been expecting rates to remain low for close to another year. Low inflation has engulfed much of Great Britain.
Carney believes he will have to explain the low inflation levels to British Finance Minister George Osborne in a “humiliating” letter in the very near future. With the British economy performing quite well this year, some economists have been questioning as to who will raise rates first: the Federal Reserve or the BoE? Interest rates in the United Kingdom have stood at 0.5 percent for the past six years.
On the central bank’s comments, the British sterling weakened while bond prices rose. Meanwhile, Carney averred that there are some negative developments transpiring in the eurozone economy, which could very well propel the region into another recession.
“It is appropriate that, while a tightening in monetary policy remains in prospect, markets now expect somewhat easier monetary conditions over the forecast period than was the case three months ago,” said Carney in prepared remarks. “Developments in the world economy mean some of the downside risks to growth in earlier projections have crystallized. “A specter is now haunting Europe –– the specter of economic stagnation.”
Officials predicted economic growth of 2.9 percent next year and 2.6 percent in 2016, down from their initial projections of 3.1 percent and 2.8 percent, respectively, in August. The reason for the decline is because, according to the BoE, the global economy has weakened.
As we reported in September, Carney has hinted raising rates on a number of different occasions, which has become a point of criticism for many elected officials, including Teresa Pearce, Labour member of the Treasury select committee, who told the Huffington Post that the BoE must remain free from political interference.
“Since Mr Carney took his post, he has dangled the prospect of raising interest rates a number of times,” she said. “He said once there were more people employed, that interest rates may rise. Well there are more, and they have not risen.”
Labour Treasury committee member John Mann purported that the BoE would likely raise rates after the next election. Whether or not this would be a welcomed prospect for Prime Minister David Cameron remains to be seen because there are millions of Britons suffering from high debt levels and rising interest rates would further hinder their efforts to pay off that debt. On the other hand, there are millions of individuals gaining a pittance on their savings accounts.
The BoE is mulling over rate hikes, while the Fed has ended its aggressive quantitative easing program. However, the European Central Bank (ECB) and the Bank of Japan have ramped up their stimulus efforts.