Breakingviews - Mark Carney can delay UK rate rise with impunity

Bank of England governor Mark Carney at a news conference at the Bank of England in London, Britain July 5, 2016

LONDON (Reuters Breakingviews) - Mark Carney can now procrastinate with impunity. A sharp slowdown in UK growth in the first quarter, announced on Friday, gives the Bank of England governor a good reason to delay raising UK interest rates. A slackening in economic activity in continental Europe makes it practically reckless for him to do anything else at a May 10 policy meeting.

The British economy grew at a quarterly rate of 0.1 percent in the first three months of the year, the national statistics office said on Friday. That was its slowest pace of expansion in five years and markedly less than the 0.4 percent rate of growth seen in the last three months of 2017. True, bad weather affected construction and retail sales, and central bankers are supposed to ignore such special factors. But the effect of unseasonable snow was generally small and an increase in energy production partially offset the impact on overall growth.

Nor can UK rate-setters count on robust growth in the euro zone to buoy British exports. French data on Friday bore out European Central Bank President Mario Draghi’s prognosis a day earlier that the euro zone had lost some momentum since the start of the year. The quarterly growth rate of the bloc’s second-biggest economy more than halved in the first three months of the year, to 0.3 percent, the French statistics office said. Investment rose more slowly than in the previous quarter and household consumption, usually a mainstay of growth, increased by a relatively modest 0.2 percent.

The pound and British government bond yields fell after the UK data was published. But they would have slumped even further had Carney not signalled on April 19 that a May rate rise was far from a done deal. The probability of a rate rise next month derived from money market prices fell to roughly 50 percent from 80 percent after the central bank chief said last week that there were also “other meetings” this year. This probability has now been slashed to roughly a third. Even that may be too high.


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