LONDON Aug 14 Bank of England Governor Mark
Carney is gaining a reputation for upsetting the financial
Coming from a policymaker who championed predictability when
he arrived in London a year ago, his apparently alternating
signals on interest rates have left many investors perplexed.
In June, he made sterling leap by warning investors that
they were not sufficiently pricing in the chance of an early
increase in Britain's record-low benchmark interest rates.
Two months on, Carney has sent the pound tumbling towards
its biggest daily fall in six months by seemingly pushing back
the prospect of a rate hike this year.
Analysts at Citigroup called Carney a "policy chameleon"
after he caught markets by surprise on Wednesday by emphasising
the importance of pay and labour costs in the Bank's thinking on
when to raise rates while at the same time announcing a halving
of the BoE's wage growth forecasts.
"Sterling is clearly disappointed by Carney's moving of the
goalposts yet again," said Geoffrey Yu, a currency strategist at
UBS, as the pound sank to a four-month low against the dollar.
In June, a member of Britain's parliament hit the headlines
when he likened Carney to an "unreliable boyfriend" for blowing
hot and cold over when interest rates might rise.
"I would say he is more like a fearful fiancé. He has popped
the question, i.e. put the prospect of a rate hike out there,
but is yet to commit to a date for the big day," said Kathleen
Brooks, research director at FOREX.com, on Wednesday.
To be sure, the Bank of England is stressing that the
guidance that really matters for the economy is its plan to
raise rates only gradually when the time comes, and to a lower
level than before the financial crisis.
Carney on Wednesday was dismissive of the speculation about
the exact timing of the first increase, saying it only mattered
to investors gambling on interest rate futures.
Also in the BoE's defence are the huge uncertainties about
whether Britain's fast-recovering economy is at risk of
Unemployment has plunged far faster over the past year than
On the other hand, since Carney warned markets in June
against being too relaxed about when rates might rise, wage
growth has stagnated and even fell in the second quarter.
Those mixed signals from the labour market leave open the
starkly contrasting possibilities that inflationary increases in
pay are approaching, or that Britain's economic recovery remains
fragile despite its recent momentum.
"Of course the data has moved about and the BoE has to
respond, but their message seems to change a lot from month to
month and that makes it hard to figure out how much weight to
put on it," said Rob Wood at Berenberg bank in London.
Samuel Tombs, at Capital Economics, said he was taking
Carney's latest comments with a pinch of salt too.
"The recent variability of the governor's tone - recall he
was trying to talk up rate expectations in June - means we are
reluctant to read too much into his dovish noises," Tombs said,
adding the chances of a 2014 rate hike remained finely balanced.
Next week's publication of the minutes of the BoE's August
policy meeting might show at least one policymaker cast a first
vote in favour of a rate hike, potentially putting markets back
on alert about a tightening of policy this year by the BoE.
Whichever way the economic data and the policy debate
develop, there will be no return to the lull in markets that
marked much of the first year of Carney's term at the BoE.
Soon after arriving from Canada in July 2013, he moved to
douse any early expectations of a rate hike by introducing a
'forward guidance' policy. The BoE first ruled out any
consideration of a hike until unemployment fell to 7 percent.
After that happened far more quickly than forecast, the Bank
tied rates to a broad assessment of spare capacity.
Sam Hill, an economist at RBC Capital Markets in London,
said the BoE's emphasis on Wednesday on the outlook for
inflation via the labour market meant a full return to the more
traditional way of making monetary policy.
"In this sense, if the August Inflation Report last year was
about saying hello to forward guidance, this year it is about
saying goodbye to it," Hill said.
(Additional reporting by Anirban Nag and David Milliken;
Editing by Ruth Pitchford)