Bank of England governor Mark Carney unexpectedly damped expectations for an interest-rate increase next month, a move that many investors had considered a sure thing.
In a BBC interview that sent the pound lower, Mr Carney said policy makers will make their decision “conscious that there are other meetings” at which they could act this year.
That was enough to shake confidence in a move in May, with market pricing dropping to less than 50 per cent from more than 80 per cent earlier in the week.
Mr Carney also emphasised the impact of uncertainty surrounding the UK’s future trading relationship with the European Union, saying it had “prevented what would otherwise have been a surge in investment in this economy”.
The governor’s comments followed weaker-than-forecast inflation data, a drop in retail sales and mixed labour-market figures this week.
He acknowledged the recent soft numbers, though added that the Monetary Policy Committee will look at the economy “in the round.”
While Mr Carney has never put a date on the next move, a decision to keep rates on hold next month risks reviving memories of flip flops in 2014, which landed him with a reputation as an “unreliable boyfriend”.
An increase is "likely" this year, Mr Carney said in the comments, made on the sidelines of the International Monetary Fund meetings in Washington.
He noted that the central bank will have to adjust its decisions around the Brexit negotiations and eventual divorce deal to “keep the economy on a stable path.” A hike is now not fully priced in until November, although August is also a possibility.
The next big data release will be the first estimate of GDP for the three months through March, which will be published on April 27th.
While the governor acknowledged the pressure being faced by the British high street and “softer” data, he said the Monetary Policy Committee will “sit down calmly” and look at the broad economic picture when they meet in early May. – Bloomberg