Bank of England (BOE) governor Mark Carney has said that the BOE will not necessarily wait for the US Federal Reserve to hike interest rates before the BOE raises its own rates.
Bank of England Will Rise Interest Rates Independent of the US Fed
During a session at the ongoing annual International Monetary Fund meeting in Lima, Peru, Carney asserted, ‘The Fed’s timing for a hike does not impact the timing of the move by the Bank of England.”
He further continued, “We will take our own responsibilities and determine the most appropriate time for the start of the monetary policy normalization.”
Carney pointed out that since Britain began applying inflation targeting, the BOE increased interest rates before the US Fed in two of the five interest rate hike sessions.”
The governor asserted that the BOE and US Fed share domestically strong economies in spite of the weakening global economy. This means that there are prospects and not certainties of a gradual increase in rates.
He also said that there are tactical factors that would need to be determined before interest rates are hiked, maintaining his position that no one can be certain as to when rates will be increased.
Carney pointed to the need for more growth, increase in costs and inflation for the Bank to consider the possibility of an interest rate hike.
The Bank’s Monetary Policy Committee expects that increases in the cost of products will remain lower than one percent and that inflation will remain at current subdued levels.
Markets responded to the Committee’s forecast as a sign that interest rates will remain low for a much longer period than was expected. Market participants are expecting the soonest interest rate rise in the UK to happen in 2017.
Carney is however adamant that the decision to raise rates would be closely considered at the end of 2015. Meanwhile, economists and financial observers are split on the suitability of an early rate hike in line with inflation trends.