UK rate hike talk is 'due to markets not adjusting'
Published 25/06/2014 | 02:30
Bank of England Governor Mark Carney has said that he warned earlier this month that UK interest rates could rise sooner than expected because markets had not adjusted enough to strong British economic data.
He also said there appeared to be more slack in Britain's economy than previously thought, but that this needed to be balanced against economic growth showing more momentum than previously expected.
The pound fell after Mr Carney made the comments to parliament, because it helped ease back expectations for a rate hike by December – though one is still broadly priced in by markets.
A speech by Mr Carney on June 12 sent sterling shooting towards a five-year high against the dollar and government bond yields soaring after he said that the first interest rate "could happen sooner than markets currently expect".
He told British lawmakers yesterday the speech was motivated by the fact that market expectations for the first rate hike appeared unmoved by a run of strong economic data.
"We'd like to see the market adjust to the data, just as our opinions are updating. We hadn't seen (that)," said Mr Carney.
He also said the economy had more momentum than the BoE would have expected.
"We have to balance that against the possibility in my view that we could have more spare capacity," he added, pointing out that wage growth has been weaker than expected.
"The developments on the wage front suggest to me ... that there has been more spare capacity in the labour market than we previously had thought."